When to Use Interest Only for Investment Apartments

An investment apartment loan gives you access to finance structured specifically for rental property ownership.

Richmond's apartment market continues to attract investors drawn to its rental yield, proximity to the CBD, and the tenant demand generated by young professionals and medical workers near Epworth and the Yarra precinct. Choosing the right loan structure and understanding the deposit you'll need can make the difference between cashflow pressure and a sustainable addition to your wealth strategy.

How Much Deposit Do You Need for an Investment Apartment?

Most lenders require a 20 per cent deposit to avoid Lenders Mortgage Insurance on investment loans. A smaller deposit is possible, but LMI adds a cost that can run into thousands of dollars and is typically capitalised into the loan amount rather than paid upfront. The calculation depends on your loan to value ratio, the lender, and whether you're purchasing in a high-density postcode.

Consider a buyer acquiring an apartment in one of Richmond's newer developments near the railway station. With a 15 per cent deposit, LMI might add several thousand dollars to the borrowing, and some lenders apply stricter serviceability tests or decline the application altogether if the postcode is flagged for oversupply. A 20 per cent deposit removes that friction and gives you access to a wider panel of lenders and more investment loan options with better pricing.

Stamp duty also forms part of your upfront cost. In Victoria, investment purchases attract the standard rate without access to concessions available to owner-occupiers, so budgeting for both deposit and duty is essential before you commit to a contract.

Interest Only or Principal and Interest: Which Structure Works for Apartments?

Interest only repayments reduce your monthly outgoings by deferring principal repayment for a set period, typically up to five years. Principal and interest repayments build equity from day one but cost more each month. The structure you choose affects cashflow, tax position, and long-term wealth accumulation.

Interest only suits investors prioritising deductible interest and cashflow, particularly when rental income doesn't fully cover the loan repayment and holding costs. An apartment in Richmond with body corporate fees, council rates, and landlord insurance can carry annual expenses exceeding several thousand dollars. Keeping the loan repayment lower in the early years gives you breathing room if the property sits vacant between tenancies or if interest rates rise.

Principal and interest works well if you're focused on debt reduction or if the apartment generates strong rental yield that covers the higher repayment. Over time, reducing the loan balance lowers your risk and increases the equity available for future purchases or refinancing to release equity.

Variable or Fixed Rate Investment Loans: Matching the Rate to Your Strategy

A variable rate gives you flexibility to make extra repayments, redraw funds if the loan permits, and avoid break costs if you refinance or sell. A fixed rate locks in your repayment for a set term, protecting you from rate increases but restricting prepayment and refinance options during the fixed period.

In our experience, investors with multiple properties or plans to expand their portfolio within a few years tend toward variable rates to preserve flexibility. Those holding a single apartment and prioritising budget certainty may fix part or all of the loan, particularly if they're concerned about serviceability tightening under APRA's current debt-to-income settings.

Split loans, where you fix a portion and leave the remainder variable, are common but add complexity. You'll manage two loan accounts, two sets of terms, and potentially two rate structures when the fixed term expires. If that trade-off delivers the certainty you need without locking away all your flexibility, it can work well.

Negative Gearing and the Tax Changes from July 2027

Negative gearing allows you to offset your net rental loss against other income, reducing your taxable income and generating a tax refund. For investment apartments purchased before 7:30pm AEST on 12 May 2026, that treatment continues unchanged until you sell.

For apartments purchased on or after that date and time, the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 quarantines rental losses from 1 July 2027 unless the property qualifies as an eligible new build. Losses on affected properties can only be offset against other residential rental income or carried forward to offset future rental income or capital gains. They cannot reduce your salary, business income, or other assessable income.

An eligible new build is a dwelling constructed on previously vacant land or a development that increases the total number of dwellings on the site. A knock-down rebuild that replaces one dwelling with one dwelling does not qualify. If you're considering an off-the-plan apartment in Richmond, confirm with your solicitor and tax adviser whether the development meets the definition before relying on negative gearing beyond the transitional period ending 30 June 2027.

Properties acquired between 7:30pm AEST on 12 May 2026 and 30 June 2027 may be negatively geared under existing rules until 30 June 2027 only, then the quarantine applies unless the property is an eligible new build.

What Lenders Assess When You Apply for an Investment Apartment Loan

Lenders assess your income, existing debts, living expenses, and the rental income the property is expected to generate. Rental income is typically shaded to 80 per cent to account for vacancy, arrears, and management costs. Some lenders apply a lower shading rate to apartments in high-density postcodes or buildings with a high proportion of investor owners.

APRA's serviceability buffer requires lenders to assess your ability to service the loan at a rate three percentage points above the product rate. The debt-to-income cap, effective from 1 February 2026, limits the share of new loans a lender can write above six times your gross income. If your total borrowing, including the new investment loan, exceeds that threshold, you may face a decline or need to reduce the loan amount unless the lender has capacity within its DTI allocation.

If you're buying your first investment property, the lender will also want to see a demonstrated savings pattern, stable employment, and a clear understanding of your strategy. If you're expanding your property portfolio, they'll review your existing rental income, loan commitments, and whether you have sufficient equity to support the new purchase without over-leveraging.

Richmond Apartment Market: Yields, Vacancy, and Tenant Demand

Richmond's proximity to the CBD, cafes along Swan Street and Bridge Road, and access to the Yarra River walking paths keep tenant demand consistent, particularly among professionals aged 25 to 40. Apartments close to Richmond and East Richmond stations attract renters who prioritise public transport and walkability over additional living space.

Vacancy rates in inner Melbourne have tightened over the past year as migration returned and new apartment completions slowed. That tightening improves yield and reduces the risk of extended vacancies, but body corporate costs in older buildings and the mix of owner-occupiers versus investors can still affect your net return.

When assessing a specific apartment, review the body corporate minutes for special levies, building defects, or planned works that might require a capital call. Lenders sometimes decline finance on buildings with unresolved cladding issues or where owner-occupier numbers fall below a certain threshold, so due diligence before you sign the contract protects you from financing delays or valuation shortfalls.

Refinancing Your Investment Loan After Purchase

Refinancing can reduce your rate, access equity for further investment, or switch from interest only to principal and interest as your strategy evolves. Refinancing an investment loan follows the same serviceability and LVR rules as a new application, so if your income has changed or you've added other debts, your borrowing capacity may differ from the original approval.

If you refinance within a fixed rate period, break costs apply. These costs reflect the lender's funding loss and can run into thousands of dollars depending on the rate differential and remaining term. Waiting until the fixed term expires avoids that cost, but if the rate saving or equity release justifies the break cost, refinancing earlier can still deliver a net benefit.

We regularly see investors refinance to consolidate loans, remove LMI by reaching 80 per cent LVR through capital growth, or move to a lender offering better offset features or lower ongoing fees. The decision depends on your current loan terms, your medium-term plans, and whether the benefit outweighs the cost and effort of switching.

Premier Path Finance works with investors across Richmond and inner Melbourne to structure investment apartment loans that align with your cashflow, tax position, and portfolio goals. Whether you're purchasing your first rental property or adding to an existing portfolio, we'll help you compare lenders, understand the regulatory settings, and choose the loan features that support your strategy. Call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions