Smart ways to approach your investment property deposit

Most lenders require a minimum 10% deposit for an investment property, though the amount you put down shapes your borrowing costs, loan structure, and long-term returns.

The decision you're facing isn't just whether you have enough saved. It's whether the deposit you're planning gives you access to the loan structure that supports your investment strategy, particularly in a suburb like Templestowe where median property values sit higher than many Melbourne areas and where rental demand from families and young professionals remains consistently strong.

The 10% Deposit Option and What It Actually Costs

You can borrow up to 90% of a property's value with a 10% deposit, but you'll pay Lenders Mortgage Insurance (LMI) on any loan above 80% LVR. LMI protects the lender if you default, and the premium is typically added to your loan amount rather than paid upfront. On a purchase in Templestowe, LMI at 90% LVR can add tens of thousands to your total loan depending on the property value and your financial profile. Lenders assess investment loans more conservatively than owner-occupier loans, so serviceability becomes tighter when you're borrowing at higher LVRs. Rental income is generally shaded by 20% to account for vacancy and management costs, which means your other income needs to cover the shortfall between actual loan repayments and the reduced rental income lenders use in their calculations.

Consider a buyer purchasing a two-bedroom apartment near The Pines Shopping Centre as an investment. With a 10% deposit and the cost of LMI capitalised into the loan, the total amount borrowed increases, which in turn affects cash flow. If rental income doesn't fully cover repayments after the lender's 20% shading, the investor needs to demonstrate they can service the gap from their salary or other income sources. For someone on a moderate income without significant equity elsewhere, this can limit how much they're approved to borrow even if they have the deposit saved.

Why 20% Deposit Opens Up Different Loan Structures

Borrowing at 80% LVR removes the need for LMI and gives you access to wider loan features and more competitive pricing. Many lenders reserve their most flexible loan products and sharpest pricing for investors who contribute at least 20%. You also gain more control over repayment structures. Interest-only repayments on investment loans are more readily approved at lower LVRs, which can improve cash flow if you're relying on capital growth rather than paying down the loan quickly. At 90% LVR, some lenders either restrict interest-only terms or require principal and interest repayments from the outset, which increases your monthly commitment.

Templestowe's proximity to the Eastern Freeway, quality schooling options, and established parks make it attractive to long-term tenants, which supports stable rental income. If you're holding the property for growth and planning to use equity for future purchases, keeping your loan amount lower and your cash flow sustainable from the start matters more than minimising your initial deposit.

Using Equity from Your Home Instead of Cash Savings

Many investors in Templestowe already own a home in the area or nearby and use equity rather than saving a separate cash deposit. If your home has increased in value, you can borrow against that equity to fund the deposit and purchase costs for an investment property without liquidating other assets. Lenders assess this by looking at the combined LVR across both properties. For example, if your home is worth enough and your loan is small enough, you might be able to access up to 80% of your home's value while keeping the investment property loan at 80% LVR as well, avoiding LMI entirely.

This approach is common when buyers want to expand their property portfolio while preserving cash for other expenses or opportunities. The refinance or equity release on your home is structured as a separate loan split, which keeps your investment borrowing clean and makes it easier to manage deductions. The interest on the portion borrowed for investment purposes is generally tax-deductible, but you'll want to speak with an accountant to structure it correctly. One detail often overlooked is that releasing equity also means your total debt increases, so serviceability is assessed on the combined repayments across both loans. If you're planning to reduce work hours, take parental leave, or change jobs in the near future, lenders factor that in.

How Serviceability Shapes What You Can Borrow Regardless of Deposit Size

Even if you have a 20% deposit or more, lenders assess your ability to service the loan using rental income shaded by 20% and a buffer rate above the actual interest rate. This buffer, typically 3%, is applied to ensure you can still afford repayments if rates rise. For investment properties, lenders also include existing debts, living expenses, and other property commitments in their calculations. In practice, this means two investors with the same deposit might be approved for vastly different loan amounts depending on their income, employment type, and existing liabilities.

Someone purchasing a three-bedroom townhouse in Lower Templestowe as an investment might have a 25% deposit ready and expect to borrow the balance without issue. But if they also carry a large home loan, personal debt, or work in a variable-income role, the lender's serviceability assessment could reduce the approved amount or require a larger deposit to bring the loan size down. This is where working with a mortgage broker in Templestowe helps, as different lenders assess rental income, employment types, and living expenses differently. Some lenders are more favourable toward investors with multiple properties, while others tighten criteria as your portfolio grows.

Structuring Your Deposit to Fit Your Tax and Cash Flow Strategy

The size of your deposit also determines how you structure the loan to align with your tax position and cash flow needs. A larger deposit reduces your loan amount and repayments, but it also reduces the deductible interest you're paying. If you're in a higher tax bracket and purchasing an investment property partly for the tax benefits, borrowing more and putting down less can increase your deductible expenses, though this must be weighed against the cost of LMI and higher repayments. On the other hand, if cash flow is tight and you want the investment to be as close to self-funding as possible, a larger deposit or paying down the loan faster might make more sense even if it reduces your deductions.

There's no universal formula, and your decision should account for your marginal tax rate, other income sources, and whether you're planning to acquire more properties in the short term. Keep in mind that changes announced in the Federal Budget around negative gearing and capital gains tax now apply differently depending on when and what type of property you buy, so speaking with both a broker and a tax adviser ensures your structure fits the current rules.

What Happens When You Buy Before Selling Your Current Home

If you're buying an investment property in Templestowe but also planning to sell your current home or move into a new owner-occupier property, timing affects how lenders assess your deposit and borrowing capacity. Some buyers purchase the investment first using equity, then sell their existing home and use the proceeds to pay down debt or fund the next purchase. Others move into a new home and convert their existing property to an investment. Both scenarios require careful structuring to ensure your loans are set up correctly for tax purposes and that you're not over-leveraged during the transition period.

Lenders will assess your capacity based on owning both properties simultaneously, even if you plan to sell one soon after settlement. Bridging loans can be used in some cases, though they come with higher rates and stricter terms. The cleaner approach is usually to structure your finance so that you can hold both properties comfortably for a few months if needed, giving you time to sell without pressure or to adjust your plans if market conditions shift.

Your deposit size, where it's coming from, and how it's structured will shape every other decision in your investment purchase. The right amount depends on your income, your timeline, your tax position, and what you're trying to achieve with the property itself. Call one of our team or book an appointment at a time that works for you.

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