Why Should You Compare Investment Loans Before Buying

Comparing investment loans before you commit to one can save you money every month and protect your flexibility down the track.

Most people assume one investor loan is much like another, but lenders price and structure these products differently depending on whether you're buying established or new, how much deposit you have, and what repayment structure you choose. The rate you're quoted is only part of the picture. Features like offset accounts, redraw access, interest-only periods and portability all vary between products, and those differences show up when you need to draw equity, hold the property through a vacancy, or move the loan to a different security.

Lane 4 Finance works with a panel of lenders across Australia, which means we can show you what's available and explain how each option suits your circumstances. Knowing what to compare and why it matters is the starting point.

Interest Rates and How Lenders Price Investment Loans

Investment loans generally attract a higher rate than owner-occupied loans because lenders view them as higher risk. The gap between the two is usually between 0.20 per cent and 0.60 per cent, depending on the lender and your deposit size. Some lenders offer discounts off their published rates if you meet certain criteria, such as borrowing above a set amount or holding other products with the same institution.

Variable rates move with the official cash rate and can be adjusted by the lender at any time. Fixed rates lock in your repayments for a set period, usually between one and five years, but come with restrictions on extra repayments and no offset account access during the fixed term. A split loan lets you fix part of the balance and leave the rest variable, which can smooth out some of the trade-offs.

Interest-Only Repayments and Why Investors Use Them

An interest-only loan means you pay only the interest each month and don't reduce the principal during the interest-only period. After that period ends, the loan reverts to principal and interest repayments, and the monthly cost increases.

Property investors often choose interest-only repayments because the interest is tax deductible, and keeping the loan balance higher maximises that deduction. It also frees up cash flow to cover other costs like maintenance, body corporate fees or periods when the property isn't tenanted. The downside is you're not building equity through repayments, so your equity growth depends entirely on the property increasing in value.

Interest-only periods are typically offered for up to five years at a time, and some lenders will renew the arrangement once or twice if the property still meets their criteria. Not all lenders offer interest-only on investment loans above a certain loan-to-value ratio, and the rate during the interest-only period is sometimes higher than the equivalent principal and interest rate.

Offset Accounts and Redraw Facilities

An offset account is a transaction account linked to your loan. The balance in the offset reduces the amount of interest you're charged without reducing the loan balance itself. If you have a $400,000 loan and $30,000 sitting in a full offset account, you only pay interest on $370,000.

Offset accounts work well for investors who want to park rental income or savings while keeping the loan balance high for tax purposes. Not all investment loans come with an offset, and some lenders charge a higher rate or an annual fee if you want one included.

A redraw facility lets you access any extra repayments you've made above the minimum. It's not the same as an offset. With redraw, you're pulling money back out of the loan, which can have tax implications if you're using that money for private purposes. Redraw is also at the lender's discretion, and some lenders restrict or remove access if your circumstances change.

Loan-to-Value Ratio and Lenders Mortgage Insurance

Your loan-to-value ratio is the loan amount divided by the property value, expressed as a percentage. If you borrow $400,000 to buy a property valued at $500,000, your LVR is 80 per cent.

Most lenders will lend up to 90 per cent LVR for investment property, but anything above 80 per cent usually requires Lenders Mortgage Insurance. LMI protects the lender if you default, and the cost is passed on to you. The premium depends on your loan amount and LVR, and it's usually added to the loan balance rather than paid upfront. In some states, stamp duty applies to the LMI premium as well.

If you're refinancing or using equity from another property as your deposit, the LVR calculation is based on the new property's value and the total amount you're borrowing across all securities. Some lenders are more flexible than others with how they calculate serviceability and LVR when you're building a portfolio.

Why Serviceability Differs Between Lenders

Serviceability is the lender's assessment of whether you can afford the loan repayments based on your income, expenses and other debts. For investment loans, lenders usually include a percentage of the expected rental income when calculating your serviceability, but they don't count all of it. Most lenders apply a shading rate of between 70 per cent and 80 per cent to allow for vacancies, maintenance and management costs.

Some lenders are more conservative and will only count 70 per cent of the rent, while others might go as high as 80 per cent. That difference can affect how much you're approved to borrow, especially if you're buying multiple properties or already have other investment debt.

Lenders are also required to assess your ability to service the loan at a rate that's at least 3.0 percentage points above the actual loan rate. So even if your loan rate is 6.0 per cent, the lender will test whether you could still afford repayments if the rate rose to 9.0 per cent. That buffer has been in place since late 2021 and applies to all new loans with banks, credit unions and building societies.

Portability and What Happens If You Sell or Swap Properties

Portability means you can move your loan from one property to another without discharging it and reapplying from scratch. Not all lenders offer portability, and those that do often place conditions around it, such as requiring the new property to be of similar or higher value.

If you're planning to sell an investment property and buy another one within a short timeframe, portability can save you discharge fees, application fees and the cost of a new valuation. Without it, you'll need to refinance or apply for a new loan, which takes time and may not be approved if your circumstances have changed.

Some lenders also allow you to transfer your loan to a different property if you decide to move into your investment and turn your previous home into a rental. The ability to do that without penalty depends entirely on the terms of your loan contract.

Claimable Expenses and How Your Loan Structure Affects Them

The structure of your investment loan affects what you can claim as a deduction. Interest on the portion of your loan used to buy or hold the investment property is deductible, but interest on any portion used for private purposes isn't.

If you redraw money from your investment loan to buy a car or pay for a holiday, the interest on that redrawn amount is no longer deductible. That's why many investors prefer an offset account, where the loan balance stays the same and you're just reducing the interest charged.

Other holding costs like loan fees, property management fees, council rates, insurance, repairs and depreciation are also deductible, but they're separate from the loan structure itself. If you're using equity from your home to fund the deposit on an investment property, only the interest on the investment portion is deductible. Keeping your loans separate and your records clear makes tax time much simpler.

Refinancing Investment Loans and When It Makes Sense

Refinancing an investment loan means switching to a different lender or product, usually to get a lower rate, access different features, or release equity. Many investors refinance when their fixed rate expires, when they want to consolidate debt, or when their current lender won't approve further borrowing.

Before refinancing, check whether your current loan has any exit fees or break costs, especially if you're still within a fixed term. Some lenders also claw back any cashback or rate discount you received if you leave within a certain period, usually two or three years.

Refinancing costs include application fees, valuation fees and sometimes legal fees, depending on the lender and the state you're in. If the rate saving is small and you're planning to sell the property within a year or two, refinancing might not be worth the upfront cost. Running the numbers with a broker helps you work out whether the switch will actually leave you ahead.

How Lane 4 Finance Compares Investment Loans for You

We compare loan products from a panel of lenders across Australia, looking at rates, features, fees and serviceability policies to find options that suit your situation. That includes whether you're buying established or new, how much deposit you have, whether you need interest-only repayments, and how the loan fits with any other property or debt you already hold.

We also look at your longer-term plans. If you're planning to buy more property down the track, we'll prioritise lenders who are flexible with portfolio lending and who assess rental income more favourably. If you're buying a new build, we'll make sure you're with a lender who can handle progress draws during construction and who won't penalise you if settlement is delayed.

Every lender has different appetites for risk, different serviceability calculators, and different policies around things like self-employed income, rental shading and LVR limits. Knowing which lenders suit which scenarios is what we do, and it's why comparing loans before you apply saves time and usually gets you a stronger outcome.

Call one of our team or book an appointment at a time that works for you.

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