What makes one investment loan different from another?
Investment loans differ mainly in their interest rate structure, repayment type, and features like offset accounts or redraw facilities.
Consider someone purchasing a rental property in Craigieburn. They could choose a variable rate with principal and interest repayments, giving them the security of paying down debt while retaining flexibility to make extra payments. Alternatively, they might select a fixed rate with interest only repayments for the first five years, keeping monthly costs lower and maximising cash flow while they establish the property. Both are investment loans, but they serve different strategies. The structure you choose depends on whether you're prioritising cash flow, tax efficiency, portfolio growth, or a combination of all three.
Variable rate or fixed rate for an investment property
A variable interest rate moves with the market and usually offers features like offset accounts and unlimited extra repayments. A fixed interest rate locks in your repayments for a set period, typically between one and five years, and provides certainty but less flexibility.
At current variable rates, an investment loan with an offset account linked to rental income can reduce the interest you pay while keeping funds accessible. Fixed rates suit investors who prefer predictable repayments and aren't concerned with rate movements in the short term. Some lenders offer a split structure, where part of the loan is fixed and part remains variable. This gives you some rate protection without sacrificing all flexibility.
Interest only or principal and interest repayments
Interest only investment loans let you pay just the interest portion each month, keeping repayments lower and freeing up cash for other investments or expenses. Principal and interest repayments reduce the loan balance over time and build equity faster.
Interest only periods usually run for one to five years, after which the loan reverts to principal and interest unless you apply to extend. If your rental income covers the interest only repayment and you're using the saved cash to pay down non-deductible debt or fund another deposit, the structure makes sense. If you're holding the property long term and want to reduce debt, principal and interest repayments start building equity from day one. Neither option is inherently better. It depends on your broader financial position and what you're trying to achieve with the property.
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How the loan to value ratio affects your options
Your loan to value ratio is the percentage of the property's value you're borrowing. A lower LVR gives you access to better interest rate discounts and avoids Lenders Mortgage Insurance.
If you're borrowing 80% or less of the property value, most lenders will offer their lowest investor interest rates and won't require LMI. Borrowing above 80% typically means paying LMI and accepting a slightly higher rate. Some lenders cap investor loans at 90% LVR, though 95% is possible in limited cases. Craigieburn has a mix of established homes and newer developments, and the LVR a lender will approve can depend on the property type and location within the suburb. Townhouses and units near Craigieburn Station may be treated differently to houses on larger blocks further out.
Rate discounts and how they're applied
Most lenders advertise a standard variable rate and then apply a discount based on your loan size, LVR, and whether the property is owner-occupied or investment. Investment loans typically attract smaller discounts than owner-occupier loans.
A lender might offer a 0.80% discount on an investment loan with an LVR under 80% and a loan amount over $500,000. That same lender might only offer 0.60% if your LVR is 85%. The discount isn't negotiated upfront in most cases. It's determined by the lender's pricing matrix at the time of application. If you're considering investment loan refinancing down the track, the discount you receive on a new loan may differ from your original loan, even with the same lender.
Tax deductions and deductible expenses
Interest on an investment loan is tax deductible, as are many of the costs associated with owning and maintaining a rental property. This includes loan establishment fees, property management fees, repairs, insurance, and depreciation.
If your investment property costs more to run than it earns in rent, that loss can usually be claimed against your other income. However, due to recent changes announced in the Federal Budget, negative gearing rules are changing. From 1 July 2027, losses on established residential properties bought after 12 May 2026 will only be deductible against rental income or capital gains from residential property, not against wages or other income. If you purchased your investment property before that date, the old rules still apply. New builds remain fully deductible under both the old and new arrangements. This makes the timing of your purchase and the type of property you choose more relevant than before.
Offset accounts and redraw facilities for investors
An offset account is a transaction account linked to your loan. The balance in the account offsets the loan balance when interest is calculated, reducing the amount of interest you pay. A redraw facility lets you withdraw extra repayments you've made on the loan.
For investment properties, offset accounts are usually the better option because they don't affect the deductibility of your loan interest. If you make extra repayments and then redraw them for personal use, the interest on that redrawn portion may no longer be deductible. Parking rental income or savings in an offset account keeps the funds separate and accessible without creating any tax complications. Not all lenders offer offset accounts on investment loans, and some charge a higher interest rate or annual fee for the feature.
Capital gains tax and the 50% discount
When you sell an investment property, you'll pay tax on the capital gain. Currently, if you've held the property for more than 12 months, you receive a 50% discount on the taxable gain.
Under the recent Federal Budget changes, that 50% discount is being replaced with an inflation-based calculation from 1 July 2027. However, the change only applies to gains that accrue after that date. If you bought an investment property before then, any gain up to 1 July 2027 will still qualify for the 50% discount. For properties purchased after 12 May 2026, you'll be able to choose between the old 50% discount or the new indexed method, whichever gives you a lower tax bill. For new builds, the 50% discount remains an option regardless of when you buy. These changes don't affect your loan structure directly, but they do influence the type of property you might target and how long you plan to hold it.
Loan features that support portfolio growth
If you're planning to buy more than one investment property, look for loan features that make it easier to leverage equity and access future funds without refinancing the entire loan.
Some lenders allow you to split your loan into multiple accounts, each with its own interest rate and repayment structure. Others offer pre-approved limits, where you can draw down additional funds for another deposit without a full application process. If you're expanding your property portfolio, keeping your loan structure flexible from the start saves time and cost later. Craigieburn's affordability compared to inner Melbourne makes it a common starting point for investors, and having a loan structure that supports a second purchase within a few years is worth considering upfront.
Applying for an investment loan in Craigieburn
Lenders assess investment loan applications differently to owner-occupier loans. They'll factor in rental income, but usually only 80% of it, to account for vacancy periods and maintenance costs.
You'll need to provide evidence of your deposit, proof of income, and details of any other properties or debts you hold. If the property is in a new development or a unit in a complex with a high investor concentration, some lenders may apply additional conditions or decline the application altogether. Craigieburn has both established housing and newer estates, and knowing which lenders are comfortable with which property types can make a difference to your approval and the rate you're offered. Working with a broker who understands the area and has access to multiple lenders means you're not limited to one or two products.
Call one of our team or book an appointment at a time that works for you. We'll walk through your options and help you compare investment loan products that suit your situation and your plans for the property.
Frequently Asked Questions
What's the difference between a variable and fixed rate investment loan?
A variable rate moves with the market and typically offers features like offset accounts and unlimited extra repayments. A fixed rate locks in your repayments for a set period, providing certainty but less flexibility.
Should I choose interest only or principal and interest repayments?
Interest only repayments keep monthly costs lower and free up cash flow, which can be useful for managing other investments or expenses. Principal and interest repayments reduce your loan balance over time and build equity faster.
How does the loan to value ratio affect my investment loan?
A lower LVR gives you access to better interest rate discounts and avoids Lenders Mortgage Insurance. Borrowing above 80% typically means paying LMI and accepting a slightly higher rate.
Are offset accounts worth it for investment loans?
Yes, offset accounts are usually better than redraw facilities for investors because they reduce interest without affecting the tax deductibility of your loan. They keep funds accessible and separate from the loan balance.
How do the recent Federal Budget changes affect investment loans?
From 1 July 2027, negative gearing losses on established properties bought after 12 May 2026 will only be deductible against property income, not wages. The 50% capital gains tax discount is also being replaced with an indexed calculation, though new builds retain the 50% discount option.
