Investment loan structuring matches the repayment type, rate type, security and account features to your client’s cash flow and plans for the property. For a second or third purchase, assess the new loan alongside the existing portfolio before choosing a lender.
A structure that funds the purchase can still make a later sale or refinance difficult. Record the client’s five-year intention first, then test whether the proposed facilities let them follow it.
What an Investment Loan Structure Covers
An investment loan structure sets how the borrower repays the debt, how interest is priced, which property secures it and which account features apply. Those decisions work together. An interest-only loan, for example, can have a fixed or variable rate.
Keep investment borrowing separate from private borrowing. The use of borrowed funds generally determines interest deductibility, rather than the property offered as security. Ask the client’s accountant to confirm the treatment of each facility and any mixed-purpose borrowing.
Borrowing against the family home to fund an investment deposit and redrawing an investment loan for a holiday have different purposes. An investment label on the account does not turn private spending into deductible debt. For rental-loss treatment, use the separate guide to negative gearing in Australia.
Equity is the property’s value less the debt secured against it. Accessing equity increases borrowing, and leverage magnifies losses as well as gains. Test each proposed purchase against remaining borrowing capacity and cash reserves. Paper equity alone does not establish serviceability.
Interest-Only and Principal-and-Interest Repayments
Interest-only repayments cover interest during an agreed period without reducing the principal through scheduled repayments. They can leave more cash available during that period, but the debt still needs to be repaid.
When interest-only ends, the remaining principal is normally repaid over the shorter remaining loan term. Repayments can rise even if the interest rate stays unchanged. Calculate that repayment before recommending the structure, and test whether the client can afford it without another extension.
Record the lender’s permitted interest-only term and extension conditions for the selected product. An extension is a future credit decision, so the client’s plan must also work if it is declined. Moneysmart explains the repayment change and interest-only risks.
Principal-and-interest repayments reduce the debt as the client pays. They can suit long-term holders whose income supports the repayments and whose goal is debt reduction. Compare the actual rates and total interest for both repayment types, alongside the client’s required cash reserve.
Offset Accounts on Investment Loans
An offset account reduces the balance used to calculate interest on its linked loan while the money remains in a separate account. With a full offset, a hypothetical $500,000 loan and $50,000 offset balance incur interest on $450,000.
The offset balance does not reduce the loan principal. If the client spends that cash, the interest-bearing balance rises again. Keep that effect separate from repayments when modelling cash flow.
Compare the expected saving at the client’s usual offset balance with any higher loan rate, package fee or account fee. Some lenders price offset loans differently. Moneysmart’s offset guidance explains why a low balance can leave the client paying more for the feature.
Discuss offset and redraw use with the accountant before money moves between investment and private purposes. A separate cash account and a new borrowing from redraw can have different tax consequences.
Structuring Across a Portfolio
Use separate facilities for separate borrowing purposes and identify the property securing each loan. A separate facility for each property helps track balances when properties sell or refinance at different times. It does not make private-purpose interest deductible.
Cross-securitisation ties more than one property to the lender’s security arrangements. A later sale can trigger new valuations and a review of the remaining security. The lender may require more sale proceeds to reduce debt than the client expected.
For a client planning individual sales, compare a single-security structure before linking the properties. Separate loans at the same bank do not, by themselves, prove the properties are independently secured. Read the security documents and record the release requirements. The guide to cross-collateralised home loans explains the release risks in detail.
Rate Type, Splits and Portability
Fixed rates give repayment certainty for the fixed period, while variable rates expose the client to rate changes. Fixed products can restrict extra repayments and offset access, and early repayment can incur break costs. Compare the selected product’s terms before treating either rate type as more flexible.
A split home loan divides the balance into fixed and variable portions. Size the variable portion around the cash the client expects to hold in offset or repay early. Decide repayment type separately for each portion where the lender permits it.
Portability substitutes a new security property for the old one under an existing facility, subject to lender approval. It only fits when the replacement property and transaction meet the existing approval’s conditions. Confirm valuation, timing and any reassessment requirements before presenting portability as the client’s sale-and-purchase plan.
Debt Recycling Needs Advice First
Debt recycling is an accountant-led strategy that uses repayments of private debt and new investment borrowing to change the purpose of debt over time. The broker’s role is to structure the facilities to match written advice.
Obtain that advice before arranging splits or redraws, and keep the intended use of each borrowing traceable. Moving debt between accounts does not establish deductibility on its own. The separate debt recycling guide covers the strategy and tax traps.
Advice Boundaries on Investment Files
Credit assistance covers the loan. It does not establish which property the client must buy or hold. Keep property selection outside the credit recommendation, refer financial product advice to an appropriately authorised adviser under an Australian financial services licence (AFSL), and refer tax advice to a registered tax agent.
Before shortlisting, check the lender’s investment overlays against the file. Record the interest-only term limits, how much rental income the lender accepts for serviceability and any lenders mortgage insurance (LMI) requirements. Include the existing portfolio’s debts and expenses in the assessment.
Advertise only products you can lodge through your accreditations and lender arrangements. Describe eligibility restrictions alongside advertised benefits. ASIC’s RG 234 advertising guidance addresses misleading claims and qualifications.
Commission creates a potential conflict when comparing structures or lenders. Under the conflict priority rule in ASIC’s RG 273, give the consumer’s interests priority. Disclosure alone does not resolve the conflict. Record why the recommendation fits the client, including the reasons for any higher-cost option.
Choosing a Structure in Practice
Choose the structure by working from the client’s goal to the facilities needed to support it. Use this checklist before submitting the application.
- Write down the client’s five-year intention. Include further purchases, likely sales and any planned reduction in work or income.
- Compare repayment options against that intention. Show the interest-only expiry repayment and the principal-and-interest alternative, including the cash reserve each leaves available.
- Map each loan’s purpose and security. If one property sells, identify which lender must release it and which debts must be repaid.
- Bring the accountant in before restructuring. Obtain advice on deductibility and record how each facility follows it. Keep private spending separate from investment borrowing.
- Test the next purchase as well as this one. Reassess remaining capacity using the lender’s rental-income treatment and existing commitments.
- Compare total cost and document the recommendation. Include offset costs, fixed-rate restrictions and the client’s reason for accepting any trade-off.
Before lodgement, the client must understand the repayment after any interest-only period and how a planned sale affects the remaining loans. If either answer is unclear, resolve it before committing to the structure.
