Simple hacks to fund an investment apartment

Lenders assess investment apartment loans differently to houses.

The borrowing amount you can access depends on the apartment's value, the rental income it generates, and the serviceability rules your lender applies. Lenders typically assess servicing at a rate three percentage points above the loan product rate and may reduce the rental income they count by 20 per cent or more to allow for vacancies and maintenance. Where you hold other investment debt, that existing commitment affects how much additional borrowing a lender will approve.

Deposit and LMI for apartment purchases

A deposit of 20 per cent avoids Lenders Mortgage Insurance in most cases. If you borrow above 80 per cent LVR, the lender will typically require LMI, and the premium you pay increases on a sliding scale as the LVR rises. Some lenders cap investment apartment lending at 90 per cent LVR, while others will lend up to 95 per cent LVR for strong applicants, though premiums at that level are high. Stamp duty, conveyancing fees and any upfront body corporate contributions sit outside the loan and need to be paid from your own funds or equity release from another property.

Consider an investor who holds a home in Frankston with $150,000 in usable equity. That equity can cover a 20 per cent deposit on an apartment plus settlement costs, avoiding LMI altogether. If the investor instead uses a 10 per cent deposit from savings and borrows the balance, the lender will add an LMI premium to the loan amount, which may increase the total debt by several thousand dollars depending on the purchase price.

How lenders assess rental income

Lenders do not count 100 per cent of the advertised rent when calculating serviceability. Most apply a shading rate of 20 per cent, meaning an apartment renting for $2,000 per month is assessed at $1,600 per month for borrowing purposes. Some lenders use a 25 per cent reduction for apartments in buildings with more than three levels or in certain postcodes. The rental figure used is either the current lease amount or a valuation estimate if the property is vacant at settlement.

If you are refinancing an existing investment loan or adding a second property, your current rental income is assessed using the same shading method, and your existing loan repayments are counted in full regardless of whether the loan is interest-only or principal and interest. That combination reduces the additional borrowing capacity available, particularly where existing investment debt is large.

Interest-only versus principal and interest repayments

Interest-only repayments lower the monthly cost and can improve cash flow where rental income does not cover the full loan repayment. Most lenders offer interest-only periods of one to five years on investment loans, after which the loan converts to principal and interest unless you apply for an extension. Lenders typically review interest-only extensions based on your current income, property value and loan balance at the time of the request.

Under the capital treatment rules in APS 112, a loan with an interest-only period longer than five years at an LVR above 80 per cent is classified as non-standard, which may limit lender appetite. Choosing interest-only does not reduce the rate at which the loan is stress-tested for serviceability, so the borrowing amount you qualify for remains the same whether you select interest-only or principal and interest.

Changes to negative gearing and capital gains tax from 1 July 2027

From 1 July 2027, net rental losses on residential investment properties purchased on or after 7:30pm AEST on 12 May 2026 can only be offset against other residential rental income or carried forward. You cannot offset those losses against your salary or wages. Properties held before that date continue under the existing rules, meaning losses remain deductible against all income until you sell.

For capital gains tax, the existing 50 per cent discount applies to gains accruing before 1 July 2027. Gains accruing from 1 July 2027 onward on properties purchased before that date are taxed using cost base indexation and a minimum 30 per cent rate on real gains. If you purchase an eligible new build apartment after 7:30pm AEST on 12 May 2026, you may elect to use the 50 per cent discount instead of indexation when you sell. An eligible new build is defined as a dwelling constructed on previously vacant land or a dwelling that increases the total number of dwellings on the site. Knock-down rebuilds and substantial renovations that do not increase dwelling numbers do not qualify.

These rules do not prevent you from claiming deductions for interest, body corporate fees, council rates, insurance and other holding costs during the period the apartment is rented or genuinely available for rent. They change only how rental losses and capital gains are treated for tax purposes.

Debt-to-income limits and high LVR lending

From 1 February 2026, each lender may approve no more than 20 per cent of new investor loans at a debt-to-income ratio of six times or higher. This limit applies separately to the lender's investor loan book and does not affect existing borrowers. Where your total debt across all properties is six times your annual gross income or more, some lenders may decline the application or require a larger deposit to bring the ratio below that threshold.

In practice, investors with strong servicing and a deposit of 20 per cent or more are less likely to be affected, but those seeking to borrow above 90 per cent LVR or adding a third or fourth property may find fewer lenders willing to approve the loan at higher debt multiples. Working with a broker who has access to investment loan options from banks and lenders across Australia allows you to compare policies and find a lender whose risk appetite matches your circumstances.

Choosing between variable and fixed rates

Variable rate loans allow you to make extra repayments and access features such as offset accounts, which can reduce the interest charged over time. Fixed rate loans lock in a rate for a set period, typically one to five years, but usually restrict additional repayments and do not offer offset accounts. If you break a fixed rate loan before the end of the fixed period, the lender may charge break costs, which can be substantial when rates have fallen since you fixed.

Investors often split the loan between variable and fixed portions to balance certainty with flexibility. At current variable rates, an investor holding an apartment in Mornington might fix half the loan for three years to manage repayment risk while keeping the other half variable to retain the ability to pay down debt or access an offset account for rental income and tax refunds. Rate discounts are typically smaller on investment loans than on owner-occupier loans, and discounts vary between lenders, so comparing offers before committing is worthwhile.

Body corporate and lender policies on apartment buildings

Lenders apply restrictions based on building type, age, cladding and the number of units. Some lenders will not lend on buildings with combustible cladding unless a rectification plan is in place and funded. Others cap lending at 80 per cent LVR for buildings with more than 50 units or for apartments smaller than 50 square metres. If the body corporate has insufficient sinking fund reserves or is involved in legal disputes, some lenders may decline the application outright.

Before you sign a contract, request a copy of the body corporate records, including the sinking fund balance, recent meeting minutes and any outstanding special levies. Where a special levy is due or likely, factor that cost into your borrowing and cash flow calculations. If the building is flagged by one lender, a broker can approach lenders with more lenient policies, though you may face a higher rate or a lower LVR cap.

Call one of our team or book an appointment at a time that works for you to discuss how JAYA Finance & Mortgages can structure an apartment investment loan that fits your deposit, income and portfolio goals.

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