The easiest way to finance an established investment property

Buying an established investment property in Pascoe Vale gives you immediate rental income, a proven location, and access to the area's transport connections along Sydney Road and Tullamarine Freeway.

The financing approach you take determines how much deposit you need, which loan structure works over the long term, and how you'll manage serviceability under the debt-to-income limits that came into effect in February. Most lenders now apply these limits separately to investor and owner-occupier lending, which means your borrowing capacity for investment property depends on your total household debt, not just the new loan amount.

How Much Deposit You Need for an Established Investment Property

Most lenders require a 20 per cent deposit to avoid Lenders Mortgage Insurance on an investor loan. At Pascoe Vale's current median of $970,000 for a three-bedroom house or $635,000 for a two-bedroom unit, that equates to a cash deposit of $194,000 or $127,000 respectively, plus stamp duty and settlement costs.

If you're purchasing with less than 20 per cent deposit, you'll pay LMI as a one-off premium. The cost varies based on your loan amount and loan-to-value ratio, but it's typically capitalised into the loan rather than paid upfront. Some lenders cap investor loans at 90 per cent LVR even with LMI in place, and interest rate pricing is generally higher above 80 per cent LVR due to the increased risk weighting under APRA's prudential standards.

If you already own property, you may be able to use equity from your home rather than saving a separate cash deposit. This approach is common among investors expanding their portfolio or buying their first investment property while still living in an owner-occupied home. The amount you can access depends on how much equity sits in your existing property and how that equity release affects your overall serviceability.

Interest-Only or Principal-and-Interest Repayments

Investor loans can be structured as interest-only for an initial period, typically up to five years, or as principal-and-interest from day one. Interest-only repayments lower your monthly outgoings and maximise the interest deduction, which matters if you're negatively geared. Principal-and-interest repayments reduce your loan balance over time and may result in a lower interest rate, but they also increase your monthly commitment and reduce the amount you can claim as a tax deduction.

Consider an investor purchasing a two-bedroom unit in Pascoe Vale at the current median of $635,000 with a 20 per cent deposit. The loan amount is $508,000. On an interest-only structure at current variable rates, monthly repayments sit around $2,600 depending on the lender. On a principal-and-interest structure over 30 years, monthly repayments increase to approximately $3,200, with the additional $600 per month reducing the loan balance by around $7,200 in the first year.

The choice depends on your cash flow, tax position, and whether you plan to hold the property long term or sell within a shorter timeframe. Interest-only periods are capped under APS 220, and lenders will assess serviceability at the principal-and-interest rate even if you choose interest-only initially.

Variable or Fixed Rate Investor Loans

Variable rate loans allow you to make extra repayments, access offset accounts, and adjust your structure without break costs. Fixed rate loans lock in your repayments for a set period, typically one to five years, but restrict your ability to make extra repayments and incur break costs if you refinance or sell before the fixed term ends.

In our experience, most investors purchasing established property in suburbs like Pascoe Vale choose variable rates or a partial fixed structure, particularly where rental income covers most of the loan repayments and flexibility is more valuable than rate certainty. If you're concerned about rate movements over the next 12 to 24 months, a split structure allows you to fix a portion of the loan while keeping the remainder on a variable rate with full offset access.

How Negative Gearing Rules Apply to Established Property Purchases

Under the changes that took effect from 12 May, established investment properties purchased after that date are subject to the new negative gearing rules from the 2027-28 income year. Losses from those properties can only be offset against income from other residential properties, including capital gains, rather than against your salary or other income. Losses can be carried forward indefinitely to offset future residential property income.

Established properties held at 7:30pm AEST on 12 May, or under contract at that time, retain full negative gearing treatment until sold. If you're purchasing an established property in Pascoe Vale now, losses incurred in the current financial year and the 2026-27 year can still be offset against all income. From 1 July 2027, those losses are quarantined to residential property income only.

This changes the financial profile of a negatively geared investment. If rental income of $28,000 per year falls short of loan interest, council rates, insurance, property management, and other holding costs totalling $35,000, the $7,000 annual loss can be used to reduce tax on your salary until 30 June 2027. From 1 July 2027, that $7,000 loss is carried forward and can only reduce tax when you have income from residential property, either from rental income exceeding expenses in a future year or from a capital gain when you sell.

The capital gains tax treatment also changes from 1 July 2027. Gains accruing before that date are taxed under the existing 50 per cent discount. Gains accruing from 1 July 2027 are indexed for inflation and taxed at a 30 per cent minimum rate on the real gain. If you purchase a Pascoe Vale unit now and sell in eight years, you'll apportion the gain between the period before and after 1 July 2027, either by obtaining a valuation at that date or applying the ATO's formula.

Serviceability and Debt-to-Income Limits

Lenders assess your ability to service an investment loan at an interest rate 3.0 percentage points above the actual product rate, a buffer that has applied since October 2021. If the investor variable rate is 6.5 per cent, you'll be assessed at 9.5 per cent. Lenders also apply a debt-to-income limit of six times your gross household income for no more than 20 per cent of new investor loans, a measure that came into effect in February.

If your household income is $150,000 and you have an existing owner-occupier loan of $600,000, your total debt sits at four times income. Adding a $500,000 investor loan takes total debt to $1,100,000, or 7.3 times income, which exceeds the six-times threshold. You would need to either reduce the loan amount, increase your deposit, or demonstrate higher income to meet the DTI limit without falling into the restricted 20 per cent allocation.

Rental income is included in serviceability assessments, but lenders typically apply a shading factor of 70 to 80 per cent to account for vacancy and management costs. Pascoe Vale's rental vacancy sits within Melbourne's metro average of 1.3 per cent as at July, supporting rental income assumptions in the area.

Refinancing an Existing Investment Loan

If you already hold an investment property and your loan is on a higher rate or lacks features you need, refinancing can reduce your interest cost or release equity for further investment. The same serviceability and DTI rules apply to refinance applications, and break costs apply if you're exiting a fixed rate loan before the term ends.

Refinancing an investor loan doesn't trigger the new negative gearing rules. The grandfathering provisions apply to the property acquisition date, not the loan origination date. If you purchased an established property before 12 May, you retain full negative gearing treatment even if you refinance that loan after that date.

Call one of our team or book an appointment at a time that works for you. We'll help you compare investor loan products, structure your deposit and loan mix, and work through serviceability based on your current income and debt position.

Frequently Asked Questions