Investment Loan Optimisation: What Not to Do and Why

An investment loan that suited you at settlement can stop suiting your strategy.

If you own or plan to buy an investment property in Berwick or Harkaway, the structure of your loan matters as much as the rate. Optimising it means matching the loan's repayment type, features and lender to what you want the property to do for you. Each choice below carries a trade-off, so it pays to know it before you commit.

What Is Investment Loan Optimisation?

Investment loan optimisation is reviewing your loan's structure, features and lender so they fit your goals and cost less to hold. It covers repayment type, offset accounts, how funds are drawn and whether a refinance makes sense.

It is not only about chasing a lower rate. A loan with a sharp rate but the wrong structure can cost you in tax clarity, flexibility or future borrowing. Our investment loans team compares investment loan options from a range of lenders, so the review starts from your goals and not from one lender's product list.

Is Interest Only Always the Right Choice for an Investor?

No. Interest only lowers your early repayments, but the loan balance stays the same and the repayments rise when the interest-only period ends.

Consider an investor with a $600,000 loan on an interest-only term of five years over a 30-year loan. At the illustrative rate of 6.75% p.a., the interest-only repayment is about $3,375 a month. A principal and interest repayment over 30 years at the same rate is about $3,892 a month, so the investor saves roughly $517 a month at the start.

When the five years end, the loan reverts to principal and interest over the remaining 25 years. At the same illustrative rate, that repayment is about $4,145 a month, around $253 more than the 30-year principal and interest figure. The investor chose interest only to keep cash flow steady while renovating. They then budgeted for the higher repayment before the change arrived and avoided a surprise.

Interest only also does not lift your borrowing capacity. Lenders regulated by APRA generally assess these loans on principal and interest repayments over the remaining term after the interest-only period. You can test the effect on your own numbers with the borrowing capacity page.

On tax, interest on a rental property loan is deductible to the extent the property is rented or available for rent. Only the interest part of a principal and interest repayment is deductible, and the principal part is not. Ask your accountant how this applies to you.

Does an Offset Account Change Your Tax or Your Loan Amount?

An offset account reduces the balance your interest is charged on, but it does not reduce the loan itself. Less interest is charged, so the interest you incur, which is the basis for any deduction, is also lower.

The loan balance and the loan's purpose stay unchanged. An offset balance also does not reduce the loan amount for lender LVR purposes. Check whether an offset is full or partial, and whether it adds a fee or a higher rate, as these vary by lender.

How Does the Negative Gearing Change Affect New Purchases?

From the 2027-28 income year, net rental losses on established residential properties bought after 7:30pm AEST on 12 May 2026 can only be deducted against other residential property income. Properties held at that time keep full deductibility of losses until sold, and eligible new builds acquired after that date can also continue to deduct losses against all income.

Properties acquired between 12 May 2026 and 30 June 2027 may be negatively geared under the current rules until 30 June 2027 only. The change does not alter whether interest is deductible. It changes how a net rental loss can be used.

This matters when you set the loan amount and decide how much rental income you need to carry the property. If you plan to rely on salary income to absorb a loss, speak with your accountant before you buy. Lenders also count only part of expected rent. APRA's guidance points to a minimum 20 per cent haircut, so no more than 80 per cent of expected rent is counted.

Why Should You Avoid Redrawing Investment Loan Funds for Personal Use?

Redrawing from an investment loan for private spending makes the interest on that portion non-deductible. The ATO looks at how borrowed money is used at the time of each drawdown, not the loan's original purpose.

As an example, an investor has a $500,000 investment loan with $20,000 of extra repayments sitting in redraw. They withdraw it for a holiday. At the illustrative rate of 6.75% p.a., interest on that $20,000 is about $1,350 a year, and none of it is deductible. Because the redraw is mixed into the same loan, the investor now has to work out the deductible portion each year.

A tidier approach is to hold spare cash in an offset account, or keep private borrowing on a separate loan. The trade-off is that a separate loan may carry its own fees and a different rate. Confirm the tax treatment of offset withdrawals with your accountant or the ATO before you rely on an offset to avoid the redraw issue.

When Does Refinancing an Investment Loan Make Sense?

Refinancing makes sense when the saving or the added flexibility outweighs the costs of switching. Those costs can include discharge fees, valuation fees and any fixed rate break costs, which vary by lender.

Common triggers are a rate that has drifted from what new customers receive, a fixed rate expiry or a change in strategy, such as releasing equity for a second property. If the new total debt goes above 80 per cent LVR, lenders mortgage insurance is generally required, and that adds a cost you should weigh up. A loan health check will show where your current loan sits before you decide.

We work with investors across Berwick and Harkaway, and we can compare your current loan with other lenders' investment loan products.

If you would like your loan reviewed against your plans, call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions