Investment lending punishes decisions that are easy to make and hard to undo. Most of them get made in the first week, often by accident, because nobody raised them.
Offset, not redraw
Both let you park spare cash against your loan and cut the interest. They are not the same thing for tax purposes.
An offset account is a separate transaction account. The balance offsets the loan for interest, but the loan balance itself never changes. Money goes in and out without touching the debt.
Redraw pays money into the loan, reducing the balance, and lets you pull it back out later. That withdrawal is a new borrowing — and its deductibility depends on what you spend it on. Pull $50,000 out of an investment loan's redraw to buy a car and you have contaminated the deductibility of that portion. The same $50,000 sitting in an offset would not have.
Rule of thumb: keep the offset against your non-deductible debt (your own home), and leave investment loans clean. Get this confirmed with your accountant for your circumstances — but know that the decision is being made either way, whether or not anyone points it out.
Interest-only, and when it isn't clever
Interest-only keeps repayments low and maximizes the deductible interest, which is why investors gravitate to it. Two things get missed.
First, the term ends. After five years the loan reverts to principal and interest over the remaining twenty-five, and the repayment jumps — often by 30 to 40 per cent. That is a shock if you haven't planned for it.
Second, interest-only usually carries a rate premium, and you build no equity in the meantime. If your strategy relies on equity growth to fund the next purchase, you're depending entirely on the market rising.
Interest-only makes sense when you still have non-deductible debt on your own home and want every spare dollar going there instead. Once that is gone, the case gets much weaker.
Don't cross-collateralize unless you must
Cross-collateralization means one lender holds both your home and your investment property as security for the loans. It is the path of least resistance — the lender proposes it, it needs no cash, it gets the deal done.
It also means that lender controls both assets. Selling one requires their consent and often a revaluation of everything. Refinancing away means unwinding the whole structure. If their credit appetite changes, you're stuck.
The cleaner alternative is a separate equity release against your home — its own split, its own loan account — used as the deposit for a standalone investment loan, ideally with a different lender. It takes more setting up. It also keeps every property independently sellable and refinanceable.
Keep the paper trail obvious
Deductibility follows the purpose of the borrowing, not the security behind it. That means a separate loan split for the deposit and costs of each investment, never mixed with personal spending, so your accountant can trace every dollar.
Mixed-purpose loans are the single most common mess we see. Untangling one usually means apportioning every repayment for years, and sometimes the deduction is simply lost.
What lenders look at differently
- Rental income — most lenders count only 70 to 80 per cent of it, allowing for vacancy and costs.
- Existing debt — assessed at a buffered rate, typically 3% above the actual rate, which is what limits how many properties you can hold.
- Negative gearing — some lenders add the tax benefit back into servicing, some don't. The difference decides whether the deal works.
Before you buy anything
Talk to your accountant about ownership structure — personal names, which split between partners, company or trust — before you sign a contract. Changing it afterwards means stamp duty a second time.
Then talk to us about how the lending needs to be arranged to support it, and to leave the door open for the property after this one.