Common Mistakes When Financing an Investment Unit

Planning the finance before you sign a contract can help you avoid costly surprises.

A unit can suit an investor who wants a lower-maintenance asset. The loan structure, the rental income a lender will count and the tax rules all affect whether the purchase works. The sections below cover the mistakes we see most often.

Why Do Investors Overestimate Their Borrowing Capacity?

Investors overestimate borrowing capacity because lenders do not assess a loan at the rate you will pay. Banks and other APRA-regulated lenders must test new borrowers at a rate at least 3 percentage points above the loan rate.

As an example, a loan priced at the illustrative rate of 6.75% p.a. would be assessed at 9.75% p.a. Your existing debts count too. Lenders look at credit card limits, not just balances, and they apply a notional repayment to each limit. Closing unused cards before applying can lift the amount you can borrow. You can get a first estimate on our borrowing capacity page.

Non-bank lenders are not bound by the same buffer, but they set their own policies. A broker can compare how different lenders treat your income and debts.

Interest-Only Repayments on an Investment Unit: What the Numbers Show

Interest-only repayments lower your early cash outflow but do not reduce the loan, and they do 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 after the interest-only period ends.

Consider an investor with a $500,000 loan, using the illustrative rate of 6.75% p.a. for every figure below. Interest-only repayments would be about $2,813 a month. A 30-year principal and interest loan would cost about $3,243 a month.

Now suppose the investor takes five years interest-only. The balance is still $500,000 at the end of that period. Principal and interest then apply over the remaining 25 years, and the repayment rises to about $3,454 a month. That is roughly $641 a month more than the interest-only repayment and about $211 a month more than if the investor had paid principal and interest from the start.

The trade-off is clear. The investor gets lower repayments for five years but carries the full debt into a higher repayment. This suits an investor with a plan for the extra cash flow, such as building a buffer. It does not suit one who is only trying to make the purchase fit. Test your own figures with our mortgage repayment calculator.

How Do Rental Income and Body Corporate Costs Affect Your Loan?

Lenders count only part of the expected rent, and body corporate fees reduce what you keep. APRA expects lenders to allow for vacancy by counting no more than 80% of expected rent.

If the unit is not yet tenanted, a lender may rely on an estimate of rent, and APRA's guidance says lenders would normally place less reliance on estimates than on actual rent received. Each lender sets its own rules on what evidence it accepts, so ask before you apply.

The 20% haircut covers vacancy only. It does not account for body corporate fees, property management fees, insurance or repairs. Units usually carry body corporate levies, so request the levy figures before you make an offer and include them in your cash flow budget. A rental property loan that looks comfortable on rent alone can become tight once these costs are added.

Negative Gearing Rules for Established Units Bought After 12 May 2026

From the 2027-28 income year, rental losses on an established residential property bought after 7:30pm AEST on 12 May 2026 can only be deducted against other residential property income. Losses can be carried forward to later years.

Properties held at that time, including those under contract awaiting settlement, keep the existing treatment. Eligible new builds bought after that date can also still deduct losses against other income. Established units bought between 12 May 2026 and 30 June 2027 can use the current rules until 30 June 2027 only.

This matters if your plan relies on a tax refund to cover a shortfall. Interest on borrowings used for a rental property remains deductible, but only the interest portion of a repayment, not the principal. Capital gains tax rules also change from 1 July 2027. Speak to your accountant about how these changes apply to your situation before you commit to a purchase.

Deposit, LMI and Offset Accounts: Where the Costs Sit

Lenders mortgage insurance is generally required when your loan exceeds 80% of the property's value, and you pay the premium. The 80% mark is a lender policy threshold, not a legal limit on borrowing.

Borrowing above 80% needs approval from both the lender and the insurer. The premium rises with the loan amount and the LVR, so a smaller deposit adds to your upfront cost. A larger deposit lowers the premium but ties up more of your savings.

An offset account can reduce the interest charged on the loan, which also reduces the interest you can claim. It does not reduce the loan balance for LVR purposes. Offset features, fees and whether the offset is full or partial vary by lender. Our investment loans page outlines the structures we can compare for you.

If you already own a home and plan to use equity for the deposit, the use of the borrowed funds decides what interest is deductible. Money drawn for private purposes is not deductible. Use separate loan splits for the investment and personal spending, and review your existing loans with a loan health check.

If you are based in Beechboro, our Beechboro mortgage broker team can help with your investment unit purchase. Call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions