The way an investment loan is set up can matter as much as the interest rate. Structure decides your repayments, how flexible your cash flow is and how the loan sits alongside your tax position. This article walks Mount Macedon investors through the main structural choices in plain language, so you can ask sharper questions before you apply.
What Is an Investment Loan Structure?
An investment loan structure is the combination of choices built into the loan: repayment type, rate type, any offset account, and how many loan splits you have. Two loans with the same amount and the same interest rate can behave very differently depending on those choices.
The main choices are:
- Interest only or principal and interest repayments
- Variable rate, fixed rate or a split of both
- Whether an offset account is attached
- Whether the loan is one account or several
Our investment loans page outlines the options we can access from lenders across Australia. If any term below is unfamiliar, the jargon translator explains it without the fine print.
Interest Only vs Principal and Interest: A Worked Example
An interest-only loan has lower repayments during the interest-only period, but the balance does not go down, and the repayments rise sharply once principal and interest begin. Interest-only also does not increase how much you can borrow.
As an example, consider an investor with a $500,000 loan over 30 years. We will use an illustrative rate of 6.75% p.a. for both options. This is not a current offer.
- Interest only: about $2,813 a month, and the balance stays at $500,000.
- Principal and interest from day one: about $3,243 a month, and the balance falls over time.
- Five years interest only, then principal and interest: the repayment steps up to about $3,455 a month, because the same $500,000 must now be repaid over the remaining 25 years.
The investor chose five years interest only to keep cash flow comfortable while the property was settled in with tenants. They budgeted for the higher repayment from the start, and they set aside the monthly difference of roughly $640 between the interest-only and stepped-up repayments. The outcome was no payment shock when the period ended. The trade-off was a balance that had not reduced after five years, so they carried the full debt for longer.
Lenders assess interest-only loans on the repayments you would face after the interest-only period ends, using the shorter remaining term. That is why interest-only does not stretch your borrowing power. Our borrowing capacity page explains how lenders work out what you can borrow.
How Does an Offset Account Work on an Investment Loan?
An offset account reduces the balance your interest is charged on, while the loan balance itself stays the same. If you hold $20,000 in the offset against a $500,000 loan, interest is calculated on $480,000.
Because interest is lower, the interest you incur and could claim as a deduction is also lower. The saving is real, but you do not get a tax deduction on interest you never paid. An offset balance also does not reduce the loan amount a lender uses to work out your loan to value ratio (LVR). Offset features, fees and whether the offset is full or partial vary by lender, so check these before choosing a product. Speak to your accountant about how this affects your tax.
It also helps to keep savings meant for personal spending separate from the loan. Redrawing money from an investment loan for private use can change how much of the interest is deductible, because the use of the borrowed funds decides deductibility. Your accountant can confirm how this applies to you.
Fixed, Variable or Split Rate: Which Structure Fits?
A fixed rate gives you repayment certainty for a set period, a variable rate moves with the lender's pricing, and a split loan holds part of the debt in each. The right mix depends on how much a rise in repayments would strain your budget.
The trade-off with fixing is flexibility. Fixed portions may limit extra repayments or offset use, and leaving a fixed term early can bring break costs. Features such as extra repayments, offset and redraw vary by lender and product, and with a variable rate your repayments can rise. Each lender sets its own rules, so ask for these in writing before you commit.
If your fixed term is ending, the fixed rate expiry page covers your options. If you already have an investment loan, a loan health check can show whether the structure still suits you, and refinancing may be worth considering.
How Lenders Count Your Rental Income
Banks and other authorised deposit-taking institutions generally count no more than 80% of expected rent when they assess an investment loan. This allows for periods when the property is not tenanted.
That 20% reduction is a guide from the regulator, not a measure of your costs. It does not cover agent fees, repairs or other holding costs. Lenders also tend to place less weight on a rental appraisal than on actual rent received, and each lender has its own evidence rules. For a Mount Macedon property, that means your assessed income may be lower than the rent you expect to collect, so plan your numbers on the cautious side.
Banks must also test your ability to repay at a rate at least 3 percentage points above the loan rate. This is a regulator requirement for new borrowers at banks, credit unions and building societies. Non-bank lenders are not bound by it in the same way.
Negative Gearing Changes and Your Loan Structure
The tax rules for rental losses depend on when you buy the property. Losses on investment properties held at 7:30pm AEST on 12 May 2026, including those under contract, continue to be deductible against other income. Losses on eligible new builds acquired after that time can also continue to be deducted.
From the 2027-28 income year, net rental losses on established residential properties bought after that time can generally only be used against other residential property income. Excess losses can be carried forward. The change does not affect whether interest is deductible, but it changes how a loss can be used. This makes your cash flow more important, because you may not be able to rely on a tax refund to cover a shortfall. These rules are detailed, so speak with your accountant before you buy.
A broker cannot give tax advice, but we can build a loan structure around the cash flow you can sustain. Call one of our team or book an appointment at a time that works for you, and we will map out your options together.
Frequently Asked Questions
Does an interest-only investment loan increase how much I can borrow?
No. Lenders assess interest-only loans on the principal and interest repayments over the remaining term after the interest-only period. This means borrowing power is not increased by choosing interest only.
Does an offset account reduce the tax deduction on my investment loan?
An offset reduces the interest charged, so the interest you incur is lower. The loan balance and its purpose do not change. Speak to your accountant about how this applies to your situation.
How much rental income do lenders count?
Banks generally count no more than 80% of expected rent to allow for vacancy. Each lender also sets its own evidence rules, such as whether it accepts a rental appraisal.
Should I choose a fixed or variable rate for an investment loan?
It depends on how much repayment certainty you need. Fixed rates give stability but may limit features and can involve break costs, while variable rates can rise. Features such as extra repayments and offset vary by lender and product.
