Understanding the Basics of Investment Loan Applications

If you're thinking about buying in Windsor, your investment loan application is the step that decides how much you can borrow. The lender is mostly asking one thing: can you comfortably afford the loan if rates rise and rent dips?

Let's walk through how that works, so you know what to expect before you apply.

How Does a Lender Assess an Investment Loan Application?

A lender checks that you can afford the repayments, that the property is acceptable security, and that your existing debts are under control. Banks must test your ability to repay at a rate at least 3.0 percentage points above the loan's actual rate.

That buffer is an APRA requirement for banks, credit unions and building societies, and it applies to new borrowers. Non-bank lenders aren't bound by it, so their assessments can differ. Lenders also look closely at your existing debts. Even a credit card you never use can count, because lenders may assume a repayment based on the card's limit.

This is why your borrowing capacity is often lower than you'd guess. It's worth checking it before you fall in love with a property.

How Much Rental Income Will a Lender Count?

APRA's guidance is that lenders should count no more than 80 per cent of expected rent. The gap allows for times when the property sits empty.

That cut isn't about agent fees or maintenance. Lenders also tend to trust actual rent received more than a rental appraisal. What evidence each lender accepts, and whether it accepts an appraisal for a new purchase, depends on the lender. A broker can check this before you apply, which saves you a knock-back.

Interest Only or Principal and Interest: A Worked Example

An interest-only investment loan has lower repayments at first, but the debt doesn't shrink and the repayments jump when the interest-only period ends. Here is an illustration using an example rate of 6.75% p.a., which is not a current offer.

Consider an investor in Windsor who wants to borrow $500,000 over 30 years. On principal and interest, the repayment is about $3,243 a month. On interest only for the first 5 years, it's about $2,813 a month, so the investor saves roughly $430 a month early on.

When the interest-only period ends, the loan still sits at $500,000, but only 25 years remain. At the same 6.75%, the repayment becomes about $3,455 a month. That's around $212 a month more than if they'd chosen principal and interest from day one.

The outcome: the investor gets more monthly cash flow in the early years, and pays for it with a bigger repayment later and no reduction in the debt. Lenders also assess interest-only loans using the shorter remaining term, so choosing interest only doesn't lift how much you can borrow. You can test your own numbers with our mortgage repayment calculator.

What Does the Interest Deduction Actually Cover?

You can generally deduct the interest on money borrowed to buy a rental property, to the extent the property is rented or available for rent. The principal part of a repayment is not deductible.

This is the same whether you choose interest only or principal and interest. Only the interest is deductible either way. Other costs such as council rates, insurance, property management fees and repairs are also generally deductible while the property is rented or genuinely available for rent.

What you borrow the money for matters too. If you later redraw or release equity for personal spending, that part of the interest is not deductible. An offset account lowers the interest charged, so it also lowers the interest you can claim. Your accountant can explain how this applies to you.

Negative Gearing Rules Have Changed for New Purchases

Negative gearing is changing for established properties bought after 7:30pm AEST on 12 May 2026. From the 2027-28 income year, net rental losses on those properties can only be used against other residential property income, including residential capital gains. Excess losses can be carried forward.

Properties held at that time, and eligible new builds, keep the current treatment. Properties bought between that time and 30 June 2027 can use the current rules until 30 June 2027 only. The change affects how a loss can be used, not whether interest is deductible. Speak to your accountant before you buy, because the right choice depends on your income and plans.

Deposit, LVR and Lenders Mortgage Insurance

Lenders mortgage insurance is generally required when your loan is more than 80 per cent of the property's value. The borrower pays the premium, which depends on the loan amount and the loan to value ratio.

Borrowing up to 80 per cent without LMI is lender policy rather than a government rule. Borrowing above it needs the lender's approval and the insurer's approval, and each sets its own limits. The trade-off is simple. A smaller deposit gets you into the market sooner, but the LMI premium adds to your cost, and a bigger loan means bigger repayments.

If you already own a home, you may be able to use equity as the deposit. Remember that the new debt is still assessed in full, and offset balances don't reduce the loan amount when the lender calculates your LVR.

Should You Refinance Before You Apply?

Refinancing first can make sense if your current loan is limiting how much you can borrow or if you want to release equity. It also comes with costs, and those vary by lender.

A loan health check is a low-pressure way to see where you stand. If you're considering a switch, our refinancing team can compare what's on offer. Our investment loans page also explains the options we can access from banks and lenders across Australia.

Get Your Windsor Investment Loan Application Moving

A good application is mostly about preparation. Know your borrowing capacity, understand what your lender will count, and choose a repayment structure you can live with when it changes. Call one of our team or book an appointment at a time that works for you, and we'll work through your numbers together.

Frequently Asked Questions