Updated 28 October 2026
CM Law's Ultimate List: The top 50 FAQs on Buying a Residential Investment Property #8: Financing Options
CM Lawyers property purchase services
Choosing finance for an investment property involves more than finding a low advertised rate. The loan structure determines repayments, flexibility and which assets are exposed if something goes wrong. Ownership and tax arrangements can also affect whether the purchase remains affordable.
This guide explains the main financing options for NSW residential investors, including important 2026 changes. Have a lawyer check the purchase, mortgage and ownership documents before committing, and obtain lending, tax and licensed financial advice appropriate to the proposed structure.
Compare the loan structure and total cost
A variable-rate loan can change repayments when the lender changes its rate. A fixed-rate loan provides certainty for an agreed period, but may restrict extra repayments and impose break costs for early repayment or refinancing. A split loan combines fixed and variable portions. Check what happens when a fixed period ends.
Principal-and-interest repayments progressively reduce the debt. Compare loans over the same amount and term, including establishment fees, ongoing charges and discharge costs. A comparison rate includes interest and most fees, but does not capture every cost or feature. Moneysmart’s home-loan guide explains the distinctions.
An interest-only period can reduce initial repayments because principal is not being repaid. Afterwards, repayments generally increase as principal must be repaid over the remaining term. Interest-only rates may also be higher. Obtain the projected repayment after that period ends; do not assume another interest-only term or refinancing will be approved.
When refinancing, compare the cost over the remaining loan term as well as the new monthly repayment. Restarting a longer term can reduce each payment while increasing total interest. Include discharge, valuation and establishment charges, and check any fixed-rate break cost before accepting an apparent saving.
Banks, non-bank lenders and approval requirements
Non-bank lending is not automatically unregulated. The National Credit Code generally covers credit provided commercially to individuals for purchasing or improving residential investment property, subject to its statutory conditions. For regulated credit, licensees must make reasonable inquiries, take reasonable steps to verify financial circumstances and assess whether the loan is unsuitable. Company and trust borrowing require separate analysis.
Self-employed applicants may use alternative evidence of income where a lender accepts it. However, ‘low-documentation’ lending does not remove applicable verification and affordability obligations. Compare total costs, repayment conditions and the lender’s credit licence, rather than treating fewer documents as evidence of a safer loan.
APRA’s current settings include a three-percentage-point mortgage serviceability buffer for banks and other authorised deposit-taking institutions. Since 1 February 2026, these lenders may allocate up to 20% of new investment lending to borrowers with debt-to-income ratios of six or more, subject to specified exclusions. A separate limit applies to owner-occupied lending. These are portfolio controls, not a universal six-times-income ceiling or a promise of approval.
Deposits, equity and the assets securing your debt
Ask how the lender calculates the loan-to-value ratio using its valuation. A valuation below the purchase price can leave a cash shortfall. Lenders mortgage insurance is commonly required when borrowing exceeds 80% of the property’s value, depending on the product. It protects the lender, not the borrower.
A home-equity loan or line of credit can fund an investment deposit, but it creates additional debt. With a line of credit, interest generally applies to the amount drawn, subject to the facility’s terms and fees. Repayments on both facilities must fit the budget.
If your home secures investment borrowing, default can put that home at risk. Where several properties secure the same lending, ask what must be repaid or revalued before one can be sold or released. Available equity is not the same as available cash, and using it does not establish that a purchase is affordable.
Keep offset, redraw and tax treatment distinct
An offset account is a separate transaction account whose eligible balance reduces the loan balance used to calculate interest. Redraw allows access to extra loan repayments, subject to the loan terms. Compare access restrictions, fees and rates before paying for either feature.
Interest deductibility depends on the use of borrowed funds, rather than simply the property securing the loan. Redrawing an investment loan for private spending can therefore affect deductions. Mixed-purpose borrowing requires apportionment and records. Obtain tax advice before moving funds between personal and investment arrangements; a loan labelled ‘investment’ does not make every interest charge deductible.
Update tax assumptions for 2027
Legislated negative-gearing changes apply from the 2027–28 income year. Broadly, losses on affected established residential investments will be restricted to relevant residential property income and gains, with unused amounts carried forward, instead of reducing wages or other unrelated income. Qualifying new builds and grandfathered properties are exceptions.
The grandfathering cutoff is generally an ownership interest acquired before 7:30 pm ACT time on 12 May 2026, with contract timing relevant. Further exceptions and transitional protections apply, including certain transfers following death or relationship breakdown. Have the acquisition date, ownership and eligibility checked individually.
Capital gains tax reforms applying from 1 July 2027 also require updated modelling. Ask your tax adviser to check the rules for your property and projected sale, rather than assuming the previous 50% discount will continue unchanged. A tax deduction does not reimburse the full expense or remove the need to fund repayments.
SMSF property borrowing has changed
A self-managed superannuation fund is legally separate from a member’s personal finances. It cannot simply lend money or provide financial assistance to top up the deposit on a member’s personal purchase. The fund’s investment must comply with superannuation law and its retirement purposes.
Since 10 August 2026, new limited-recourse borrowing arrangements involving real property generally require the asset to be business real property. Ordinary new residential investment borrowing should therefore not be presented as a routinely available SMSF financing option. Qualifying earlier arrangements, including certain refinancings, have transitional protection.
This restriction concerns borrowing; it does not prohibit every residential property investment by an SMSF using its own funds. Obtain specialist legal, tax and appropriately licensed financial advice before establishing a fund, rolling over superannuation or signing a purchase contract.
A verified case: property marketing and superannuation advice
In Australian Securities and Investments Commission v Park Trent Properties Group Pty Ltd (No 4) [2015] NSWSC 1767, the NSW Supreme Court made declarations concerning unlicensed advice encouraging clients to establish SMSFs, transfer superannuation and purchase investment property through those funds.
The court restrained the conduct unless Park Trent obtained the required financial services licence and ordered it to pay ASIC’s costs. Its appeal was dismissed in 2016. The case illustrates why a property sales presentation should not substitute for properly licensed advice about superannuation. It does not establish that ordinary residential borrowing through an SMSF remains available under today’s rules.
Check shared ownership and stress-test the purchase
Buying with another investor may combine deposits, but a 50% ownership interest does not necessarily limit liability to half the debt. Joint and several loan obligations can expose each borrower to the whole amount. Have a written agreement covering contributions, expenses, defaults, decision-making, death and exit arrangements. Obtain separate advice on any guarantee.
Model vacancies, repairs, insurance, strata levies, land tax and higher repayments. For illustration only, a one-percentage-point increase on an unchanged $800,000 interest-only balance adds $8,000 a year, or approximately $667 a month. Principal repayments and other expenses would be additional.
Separate the purchase budget from the ongoing ownership budget. Keep funds for duty, conveyancing, inspections and settlement adjustments, as well as a reserve for unexpected expenses. Test whether repayments remain manageable without rent for a period, and whether a fall in value would prevent the refinancing or sale on which your plan depends.
Before exchanging contracts, confirm the loan amount, outstanding conditions, valuation, approval expiry and funds needed for settlement. Pre-approval is not final approval. Have your lawyer check whether the contract gives any finance protection and what happens if funding fails.
For assistance reviewing a property purchase, mortgage, guarantee or co-ownership agreement, contact CM Lawyers. Always have the proposed arrangement checked by a lawyer, with tax and financial advice obtained before relying on projected returns or tax benefits.
General information for NSW residential property investors only, not personal legal, tax, credit or financial advice. Obtain advice on your circumstances before acting.
Key resources
Moneysmart guidance on choosing a home loan — loan structures, features and borrowing costs.
ASIC guidance on responsible lending — lenders’ and credit providers’ assessment obligations.
APRA guidance on debt-to-income limits and APRA’s current strategic objectives — housing lending limits and serviceability settings.
ATO Taxation Ruling TR 2000/2 — interest deductibility for redraw and line-of-credit borrowing.
Treasury guidance on the 2026–27 tax changes — property investment tax reforms and commencement information.
Treasury Laws Amendment (Tax Reform No. 1) Act 2026 — legislative changes affecting rental losses and SMSF borrowing.
Treasury Laws Amendment (Tax Reform No. 2) Act 2026 — further exceptions and transitional provisions for property tax changes.
ASIC v Park Trent Properties Group Pty Ltd (No 4) [2015] NSWSC 1767 and the 2016 appeal judgment — judgment concerning unlicensed advice about SMSFs and property investment.
CM Lawyers — Property contract reviews and fees — Have the contract reviewed before you sign or bid.
