An investment property mortgage broker compares loans from many lenders, structures your borrowing for an investment purchase and helps you grow a portfolio without running into lender policy limits. Investment loans are assessed differently from owner-occupier loans, so the right structure can matter as much as the rate.
This guide explains what an investment property mortgage broker does, how investment loans work and what to prepare. You can also see our investment loans page.
What Does an Investment Property Mortgage Broker Do?
- Works out your borrowing power using your income, expenses, debts and the rent from the property.
- Compares lenders: policies on rental income, deposits and existing debts vary a lot.
- Structures the loan: interest only or principal and interest, fixed or variable, offset accounts and loan splitting.
- Uses your equity: can show how to use equity in your home or another property as the deposit.
- Plans ahead so one purchase does not limit the next.
New to brokers? Read what is a home loan broker.
Why Use an Investment Property Mortgage Broker?
Lenders treat investors differently. Some count only part of your rental income, some limit how many properties they will lend on, and some price investment loans higher than owner-occupier loans. An investment property mortgage broker knows which lenders suit which situation and can match you before you apply, which also avoids unnecessary credit enquiries.
Interest Only vs Principal and Interest
| Feature | Interest only | Principal and interest |
|---|---|---|
| Repayments | Lower, you pay interest only for a set period | Higher, you pay down the loan as you go |
| Loan balance | Does not fall during the interest-only period | Falls over time |
| Cash flow | Stronger in the short term | Weaker in the short term |
| Watch out for | Repayments rise when the interest-only period ends; rates can be higher | Less cash flow each month |
Which suits you depends on your goals and tax position. Our negative gearing calculator can help you see the cash flow effect, and a registered tax agent can advise on tax.
How Much Deposit Do You Need?
Many lenders prefer a deposit of 20% or more for an investment property, because borrowing above 80% of the property value usually means paying lenders mortgage insurance. You can sometimes use equity in a property you already own instead of cash.
Example (illustration only):
| Item | Illustrative figure |
|---|---|
| Value of your current home | $900,000 |
| Borrowing up to 80% | $720,000 |
| Current loan balance | $500,000 |
| Potential usable equity | $220,000 |
Illustrative only. Lenders decide how much equity you can actually use based on their policy and your circumstances.
How Lenders Assess Investment Loans
- Your income, expenses and existing debts
- The expected rental income, which lenders often count only in part
- The loan to value ratio (LVR) and the property type and location
- Your savings and credit history
Costs and Tax to Plan For
- Stamp duty, legal and loan fees
- Ongoing costs such as rates, insurance, maintenance and property management
- Possible tax benefits and obligations, including negative gearing and capital gains tax
When you sell, capital gains tax may apply. Read our guide to capital gains tax on investment property, and get advice from a registered tax agent for your situation.
Steps With an Investment Property Mortgage Broker
- Set your goal: cash flow, growth or a mix, and your timeframe.
- Check borrowing power and equity: your broker estimates what you can borrow and how.
- Choose structure and lender: interest only or principal and interest, fixed or variable, offset or not.
- Get pre-approval: so you can bid or make offers with confidence.
- Apply and settle: the broker lodges the application and manages it to settlement.
For more detail, see our loan process page. Wondering about cost? See mortgage broker fees.
Related Guides
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What does an investment property mortgage broker do?
Is it worth using a mortgage broker for an investment property?
How much deposit do I need for an investment property?
Should I choose interest only or principal and interest?
Do I pay an investment property mortgage broker?
Can I use equity in my home to buy an investment property?
This article is general information only and is not financial or credit advice. Speak to a licensed broker about your situation.
