Your deposit is the biggest lever you control when buying an investment property. A larger deposit means a smaller loan, lower repayments and less chance of paying Lenders Mortgage Insurance (LMI).
For Doncaster clients, the real question is usually where the deposit comes from. It might be cash savings, or it might be equity in a home you already own in the City of Manningham. This guide covers both. If you are new to the process, our page on buying your first investment property is a good companion.
How Much Deposit Do You Need to Buy an Investment Property?
Many lenders look for a deposit of 20% of the purchase price to avoid LMI, but that is lender policy, not a legal rule. Some lenders will lend above an 80% loan to value ratio (LVR) with LMI, and each sets its own limits.
LVR is your loan divided by the property's value. A loan of 80% of the value is an 80% LVR. Lenders also have their own rules on how much of your deposit must be genuine savings, so the figure that suits you depends on your lender and your circumstances.
The trade-off is time against cost. Saving a full 20% can delay your purchase. Borrowing more sooner usually means a larger loan, higher repayments and an LMI premium. Our investment loans team can compare how different lenders treat a smaller deposit on your investment loan application.
What Does Lenders Mortgage Insurance Cost and Who Pays?
LMI is generally required when your LVR is above 80%, and the borrower pays the premium. The insurance protects the lender, not you.
The premium is calculated on a sliding scale based on the loan amount and the LVR, so a higher LVR usually means a higher premium. Lending above 80% needs approval from both the lender and the insurer, and each applies its own criteria. State stamp duty may also apply to the premium in some jurisdictions.
Some professions may qualify for an LMI waiver, depending on the lender and insurer. Our LMI waivers page explains how this works. The trade-off is that a waiver may come with other lender conditions, so compare the whole loan rather than the premium alone.
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Can You Use Equity in Your Home as an Investor Deposit?
Yes, many investors use equity release from an existing home as their deposit, subject to the lender's valuation and serviceability assessment. Lenders cap how much equity they will release, and those caps vary.
The approach lets you leverage equity you have already built without waiting to save cash. Our page on refinancing to release equity covers the process in more detail.
The main risk is that your own home then secures more debt. Your total borrowing rises, and a fall in rent or a rise in rates affects a household that also carries your home loan.
Tax follows how the money is used, not what the loan is secured against. Funds borrowed for the investment deposit are used for an income-producing purpose. Money drawn from the same loan for personal spending is not deductible. Keeping the investment borrowing in its own loan split makes this clearer. Speak to your accountant about your situation, because deductibility depends on your circumstances.
How Your Deposit Changes Repayments: A Worked Example
Every extra $10,000 in your deposit reduces your loan by $10,000. At an illustrative interest rate of 6.75% p.a., that lowers interest-only repayments by about $56 a month.
Consider an investor who needs a $600,000 loan. At the illustrative 6.75%, interest-only repayments are $3,375 a month. Principal and interest over 30 years comes to about $3,892 a month.
If the investor chose five years interest only, repayments would then switch to principal and interest over the remaining 25 years. At the same illustrative rate, that is about $4,145 a month, higher than the 30-year figure because the principal is repaid over a shorter time. Lenders assess interest-only loans on that shorter remaining term, so choosing interest only does not increase how much you can borrow.
Now suppose the investor adds $30,000 from savings, so the loan is $570,000. Interest-only repayments fall to about $3,206 a month, a saving of about $169 a month. The trade-off is a smaller cash buffer for repairs, vacancies and settlement costs, so many investors keep some savings aside.
Only the interest portion of a repayment is deductible. The principal portion is not. Ask your accountant how this applies to you. You can test your own numbers with our borrowing capacity tools.
How the 2027-28 Negative Gearing Change Affects Deposit Planning
From the 2027-28 income year, net rental losses from established residential properties bought after 7:30pm AEST on 12 May 2026 can only be deducted against other residential property income. Excess losses can be carried forward.
Properties held at that time, including those under contract awaiting settlement, keep their current treatment. Eligible new builds acquired after that date can also continue to deduct losses against all income. The change does not affect whether interest is deductible, but it changes how a rental loss can be used.
A larger deposit lowers the interest you pay, which can reduce a rental loss. It also means a lower loan to carry if rent does not cover the costs. Your accountant can confirm how these rules apply to your own purchase.
Frequently Asked Questions
Do I need a 20% deposit to buy an investment property?
Not always. An 80% LVR (a 20% deposit) is the point beyond which LMI is generally required. A deposit of less than 20% usually triggers LMI. This is lender and insurer policy rather than a legal rule. Some lenders will lend above 80% LVR with LMI, and each sets its own limits.
Can I use equity in my home as an investment property deposit?
Yes, many lenders allow it, subject to a valuation, a serviceability assessment and their own equity release caps. Your own home then secures more debt, so the risk to your household is higher.
Is the interest on money borrowed for a deposit tax deductible?
Deductibility depends on how the borrowed funds are used. Money used for the investment purchase is treated differently from money used for personal spending. Speak to your accountant about your situation.
Does interest only increase how much I can borrow?
No. Lenders assess interest-only loans on principal and interest repayments over the remaining term after the interest-only period. That means the borrowing amount is not higher than for an equivalent principal and interest loan.
