Understanding the Basics of Your First Investment Loan

Your first investment loan is assessed mainly on your ability to repay it. Lenders count part of the expected rent, but your income and debts carry most of the weight.

That shapes everything from how much you can borrow to which loan structure suits you. At OVM Finance Group, we help Victorian investors understand these pieces before they make an offer. This guide covers the ones that matter most.

How Much Can You Borrow for a First Investment Property?

Your investment loan amount depends on your income, your existing debts and the buffer your lender adds to the interest rate. Banks must assess new borrowers at a rate at least 3.0 percentage points above the loan rate.

Using our illustrative rate of 6.75% p.a., a bank would test your repayments at 9.75% p.a. Credit card limits count too, even if you never use them.

Rental income helps, but only part of it. APRA expects lenders to count no more than 80 per cent of expected rent, to allow for periods without a tenant. Lenders also place less weight on a rental appraisal than on actual rent received. Each lender sets its own rules on what rental evidence it accepts.

It also helps to know that APRA limits how much of each bank's new lending can be at six times income or more. This is a limit on the bank's overall lending, not on you personally. Non-bank lenders are not covered by it. You can get a starting figure with our borrowing capacity tools, and we compare lenders for you through our investment loans service.

Investor Deposit and LVR: When Lenders Mortgage Insurance Applies

Lenders mortgage insurance (LMI) is generally required when your loan to value ratio (LVR) is above 80 per cent. The 80 per cent mark is not a legal borrowing limit, so you can borrow above it if the lender and the insurer both approve.

The trade-off is cost. The LMI premium is paid by you and rises with the loan amount and LVR. Some states charge stamp duty on the premium, so ask your broker for the full figure before you commit. A larger deposit can avoid LMI, but it also takes longer to save. Minimum deposit rules and LVR caps differ between lenders.

If you already own a home, you may be able to use equity as part of your deposit. Borrowing against your home creates a second debt, and the interest on that portion is only deductible if the funds are used to buy the rental property. Your accountant can confirm how this applies to you. If you are still saving for your own home first, our first home buyers page may be a better starting point.

Interest Only vs Principal and Interest: A $500,000 Loan Compared

Interest only lowers your early repayments, but it does not reduce your debt and it does not increase how much you can borrow. Principal and interest costs more each month because you are paying the loan down.

As an example, consider a first-time investor with a $500,000 loan. All figures below use an illustrative rate of 6.75% p.a., which is not a current offer.

• Interest only: about $2,813 per month.
• Principal and interest over 30 years: about $3,243 per month.
• Five years interest only, then principal and interest over the remaining 25 years: about $3,454 per month.

The investor chooses interest only for five years to ease cash flow while the property settles into a tenancy. The outcome is a monthly saving of roughly $430 in the early years. After that, repayments jump by about $640 a month, because the full $500,000 must be repaid over only 25 years. The debt is also the same at the end of year five as at the start.

Lenders assess an interest-only loan using the shorter repayment period that follows it. For this reason, it does not lift your borrowing power. Check your own numbers with our mortgage repayment calculator.

Negative Gearing Rules for a First Investment Property

If you buy an established home after 7:30pm AEST on 12 May 2026, a rental loss can only be deducted against other residential property income from the 2027-28 income year. For eligible new builds, losses can still be deducted against all your income, including your salary.

Properties already owned at that time, or under contract, keep full deductibility until they are sold. For established properties bought between 12 May 2026 and 30 June 2027, the current rules apply until 30 June 2027 only. After that, unused losses can be carried forward against future residential property income.

Eligible new builds include homes built on vacant land and homes that replace an existing dwelling and increase the number of dwellings. Knock-down rebuilds that add no extra homes and major renovations do not qualify.

This changes how a first investor might weigh up a purchase. A loss you cannot use against your salary is a real cost that you carry until the property earns more. Capital gains tax rules are also changing from 1 July 2027, so ask your accountant how the new rules apply to your plans.

Keeping Investment Debt Separate for Tax Purposes

Interest is deductible based on how the borrowed money is used, not on the property that secures the loan. Only the interest part of a repayment is deductible. The principal part is not.

If you redraw money for a holiday or a car, that part of the loan is no longer deductible. An offset account reduces the interest charged, so your deductible interest falls too. The ATO's ruling on redraw and line of credit facilities sets out how this works. Keeping personal spending away from the investment loan makes your records far cleaner at tax time. Speak to your accountant before you set up your loan structure.

If you already hold an investment loan, a loan health check can show whether your structure still suits you.

Frequently Asked Questions