How Investors Borrow Money
How do investment property loans work, and how is borrowing as an investor different from buying a home?
By Andrew, franklenn FINANCE 7 min readUpdated 3 November 2026
The short answer
Investors borrow using an investment home loan, secured by the property, with a deposit funded by savings, equity in another property or both. Lenders assess your income, existing debts and part of the expected rent, then test whether you can afford repayments at a rate above the actual rate. Investment loans often carry slightly higher rates than owner-occupied loans, and investors commonly choose between interest-only and principal-and-interest repayments. A clean loan structure matters as much as the rate.
Detailed explanation
The building blocks of an investment loan
An investment loan is a home loan used to buy, or refinance, a property that you rent out rather than live in. The property is the security for the loan, and the lender registers a mortgage over it. You need a deposit, which can be cash, equity from another property, or a combination.
Lenders price investment loans separately from owner-occupied loans, and the investment rate is often a little higher. That's because regulators and lenders treat investment lending as slightly higher risk.
You'll also be asked whether the property is for investment at the application stage, and that choice matters. Using an owner-occupied loan for a property you rent out can breach the loan terms, so if your plans change, for example you move out and rent your home, tell your lender and we can help review the loan.
How lenders view rental income
Rent helps you borrow, but not dollar for dollar. Most lenders only count a portion of the expected rent, commonly somewhere around 70% to 80%, to allow for vacancies, agent fees and running costs. Policies differ between lenders, which is one reason comparing across a large panel can make a real difference for investors.
Before you buy, the lender will usually want a rental appraisal from a property manager, or the current lease if the property is already tenanted.
Repayment types: interest-only or principal and interest
With principal-and-interest (P&I) repayments you pay down the loan over time. With interest-only (IO) repayments you pay just the interest for a set period, often up to five years for investors, which lowers repayments in the short term but doesn't reduce the debt.
Neither is automatically better. IO can help cash flow while you build a portfolio or pay down non-deductible home debt first. P&I builds equity and usually comes with a lower rate. We cover the detail in our interest-only guide.
Structure: the part people overlook
Two investors can borrow the same amount at the same rate and end up in very different positions because of how the loans are structured. A good structure keeps each property's lending separate where possible, keeps investment borrowing apart from personal borrowing, and uses offset accounts thoughtfully.
- Avoid crossing securities unless there's a clear reason.
- Use separate splits for different purposes, such as deposit funds and the main loan.
- Consider where your offset account sits: usually against non-deductible home debt first.
- Leave room in your borrowing for the next step in your plan.
Choosing the right lender
The cheapest rate on the day isn't always the right fit. Lenders differ on how they count rent, how they treat existing debts, how they assess self-employed income, what LVR they'll go to and how many investment loans they're comfortable with. For investors planning more than one property, the order in which you use lenders can affect how far you can go.
Working through a panel of more than 40 lenders, we look at both today's deal and how it sets you up for the next one.
Timing also plays a part. Pre-approval before you start looking means you know your limits and can act when the right property comes along, rather than scrambling for finance after an offer has been accepted.
Worked example
How a lender looks at a $712,000 investment purchase
An illustrative example. An investor buys a $712,000 unit, borrows 80% and expects $640 a week in rent. The actual rate is 6.24% p.a. and the lender assesses at 9.24% p.a. (a 3 percentage point buffer) over 30 years. The lender counts 80% of rent in this example.
| Purchase price | $712,000 |
| Loan (80%) | $569,600 |
| Monthly interest-only repayment at 6.24% | $2,961.92 |
| Monthly P&I repayment at 6.24% | $3,503.42 |
| Monthly P&I repayment the lender tests at 9.24% | $4,681.83 |
| Expected rent ($640 x 52) | $33,280 a year |
| Rent counted by lender (80%) | $26,624 a year ($2,218.67 a month) |
Even though actual repayments might be around $2,962 to $3,503 a month, the lender tests the loan at about $4,682 a month and only credits about $2,219 a month in rent. The gap has to be covered by the investor's other income after living costs and existing debts. Figures are illustrative; lender policies vary.
Illustrative only. Figures are examples, not a quote or a recommendation.
Common mistakes
- Assuming the lender will count all of the rent.
- Choosing a loan on rate alone without considering structure or future borrowing.
- Crossing properties together for convenience.
- Mixing investment and personal borrowing in one loan split.
- Not having a buffer for vacancies, repairs or rate changes.
Frequently asked questions
Next steps
Talk to franklenn FINANCE
If you're planning an investment purchase, book a free discovery call with franklenn FINANCE and we'll show you how different lenders would look at your situation.
This guide is general information only and does not consider your objectives, financial situation or needs. It is not financial, tax or legal advice. Lender policies, rates and government schemes change. Please speak with us, and with your accountant or solicitor where relevant, before acting.