Your loan structure matters as much as the house you choose. If you are buying an investment house in Croydon, the way your finance is set up shapes your repayments, your tax position and how far your borrowing can stretch.
Croydon has its own railway station on the Lilydale line. That is a useful fact for a buyer, but the numbers on your loan will matter more over time. Below are the decisions we would walk through with you before you make an offer.
How Much Can You Borrow for an Investment House?
Your borrowing power depends on your income, your existing debts and how the lender assesses the loan, not only on the property you want. Banks must test new borrowers at a rate at least 3.0 percentage points above the loan's actual rate, so the amount you can borrow is lower than the repayments you would actually pay might suggest.
Rental income helps, but lenders do not count all of it. APRA's guidance says a prudent lender counts no more than 80 per cent of expected rent, which allows for periods when the home is vacant. Lenders also place less weight on a rental appraisal than on actual rent received. If you are buying a house that has not yet been tenanted, expect the rent to count for less.
Credit card limits count as debts too, whether or not you use them. Closing cards you no longer need before you apply can lift your borrowing power. You can get a feel for your numbers with our borrowing capacity page, then we can check them against lender policy.
Interest Only vs Principal and Interest: A Worked Example
An interest-only loan has lower repayments in the early years, but it does not reduce what you owe, and it does not increase how much you can borrow. Lenders assess an interest-only loan as if you will repay principal and interest over the remaining term, which can mean a lower maximum loan than a principal and interest loan.
As an example, consider an investor with a $600,000 loan. We will use an illustrative rate of 6.75% p.a. for every figure below, and assume the rate stays the same.
- On interest only, the repayment is about $3,375 a month.
- On principal and interest over 30 years, the repayment is about $3,892 a month.
- If the investor takes five years of interest only, the loan then moves to principal and interest over the remaining 25 years. The repayment becomes about $4,145 a month, because the full $600,000 is still owing.
In this scenario the investor keeps about $517 a month in the first five years. The trade-off is a repayment of about $253 a month more than the 30-year principal and interest option once the interest-only period ends. For an investor who plans to hold the property for many years, that jump needs to be in the budget from day one. The mortgage repayment calculator lets you test your own figures.
The tax side is narrower than many people assume. Interest on a loan used to buy a rental property is generally deductible when the property is rented or available for rent. Under either structure, only the interest part is deductible. The principal part of a repayment is not. Speak with your accountant about how this applies to you.
Ready to get started?
Book a chat with a Mortgage Broker at OVM Finance Group today.
Negative Gearing Changes for Investment Purchases Made Now
If you buy an established house now, the rules for using rental losses against your salary will change from the 2027-28 income year. Negative gearing means your rental costs, including interest, are higher than your rent, creating a loss.
For established residential properties bought after 7:30pm AEST on 12 May 2026, net rental losses from the 2027-28 income year can only be deducted against other residential property income, including residential capital gains. Excess losses can be carried forward. Properties bought between that time and 30 June 2027 can still be negatively geared under the current rules, but only until 30 June 2027.
Eligible new builds are treated differently, and their losses can still be deducted against all income. That includes dwellings built on vacant land or replacing an existing home where the number of dwellings increases. A knock-down rebuild that does not add dwellings is not eligible.
The capital gains rules are also changing. From 1 July 2027, the 50 per cent discount is replaced by indexing the cost base to inflation, with a 30 per cent minimum tax rate on real gains accruing from that date. A gain on an asset held across that date is split into two parts. These changes affect your return, so talk to your accountant before choosing between an established house and a new build.
A loan that relies on a tax refund to stay affordable carries risk, because tax rules change and no tax outcome is certain. Choose a loan you could carry from your own income and the rent, with some room if the house sits empty for a while.
How Much Deposit Does an Investor Need? LVR and LMI Explained
The loan to value ratio (LVR) is your loan divided by the property's value, and 80 per cent is the usual point where lenders mortgage insurance (LMI) starts to apply. The 80 per cent mark is a lender practice, not a legal limit on borrowing, and each lender sets its own maximum.
LMI protects the lender, but you pay the premium. The cost depends on the loan size and your LVR, and state stamp duty may apply to it. A smaller investor deposit can mean getting into the market sooner, but you carry the cost of LMI and a larger loan. A larger deposit lowers both.
Stamp duty on the purchase is a separate upfront cost that you will need to budget for. Ask us to work through it with you before you commit to a contract.
If you already own a home, you may be able to use equity in it for the deposit. Borrowing against that equity increases your total debt and puts your home at risk if repayments are missed. The interest is only deductible based on how the borrowed money is used. Money used for the investment purchase is treated differently from money used for personal spending. Your accountant can confirm how this applies to your situation.
Choosing a Lender and Loan Features for Your Investment Loan
The lowest advertised rate is only one part of an investment loan, so compare the features, fees and the way the lender assesses rent. An offset account can reduce the interest you pay without reducing your loan balance. Fixed rates give certainty for a set period but can limit extra repayments and may cost you if you exit early. Variable rates move with the market.
As your broker, we compare options across lenders on your behalf and explain the trade-offs in plain English. If you already hold an investment loan, our refinancing service can review whether your current structure still suits you. You can read more about how we approach investment loans or speak with your local Croydon mortgage broker.
Call one of our team or book an appointment at a time that works for you, and we will map out your borrowing, your loan structure and your next move before you make an offer on a Croydon investment house.
Frequently Asked Questions
Does an interest-only investment loan increase how much I can borrow?
No. Lenders assess interest-only loans as if you will repay principal and interest over the remaining term, which can lower the maximum loan. Interest only mainly reduces repayments during the interest-only period.
How much rental income do lenders count on an investment house?
APRA's guidance says a prudent lender counts no more than 80 per cent of expected rent, to allow for vacancy. Each lender sets its own policy on what rental evidence it accepts.
Is the interest on my investment loan tax deductible?
Interest on a loan used to buy a rental property is generally deductible while the property is rented or available for rent. Only the interest part of a repayment is deductible, not the principal. Check your situation with your accountant.
Do I need to pay LMI on an investment loan?
LMI is generally required when your loan is above 80 per cent of the property's value. The premium is paid by the borrower, and each lender and insurer sets its own approval rules.
