How Much Deposit Do You Need for an Investment Property?
Most lenders require a deposit of at least 20 per cent of the property's purchase price to avoid paying Lenders Mortgage Insurance on an investment loan. Borrowing above 80 per cent loan-to-value ratio is possible, but it triggers an insurance premium that protects the lender, not you, and adds several thousand dollars to your upfront costs.
In Koo Wee Rup, where the market has attracted buyers looking for affordability within commuting distance of Melbourne, the deposit hurdle can still feel steep. A 20 per cent deposit avoids LMI entirely, keeps your borrowing costs lower, and signals to the lender that you've got genuine savings behind the purchase. If you're stretching to 90 per cent LVR, expect to pay LMI on a sliding scale based on both the loan amount and the level of risk the lender takes on.
Consider a buyer who's saved a 15 per cent deposit and wants to purchase an investment property in Koo Wee Rup. The lender will price that loan differently to an 80 per cent LVR application. LMI alone could add anywhere from a few thousand to over ten thousand dollars depending on the loan size. The premium is also subject to stamp duty in Victoria, which increases the total outlay further. You can capitalise the LMI into the loan, but that means you're paying interest on the premium for the life of the loan unless you refinance or pay it down early.
Can You Use Equity as Your Deposit?
You can use equity in your existing home or another investment property as a deposit without needing to sell. Lenders assess the combined loan-to-value ratio across all properties you're using as security. If your owner-occupied home has grown in value and you've paid down the mortgage, you may be able to access that equity and use it to fund the deposit and purchase costs on your next investment.
The catch is serviceability. Even if you have enough equity on paper, the lender still needs to be satisfied that you can service both loans at the same time. That assessment includes adding a buffer of at least 3.0 percentage points above the actual interest rate on each loan, a requirement enforced by the Australian Prudential Regulation Authority. The higher your existing debt, the less additional borrowing capacity you'll have, regardless of how much equity sits in your properties.
In our experience, buyers in Koo Wee Rup and surrounding towns like Lang Lang and Tooradin often hold their family home in one of these semi-rural areas and look to add a rental property in the same region. If you're planning to use equity this way, the lender will want a valuation on each property you're offering as security, and that valuation drives the amount they're willing to lend. Market conditions matter, so a property that was valued higher two years ago may not support the same level of borrowing now.
What Lenders Actually Assess Beyond the Deposit
Lenders don't just look at how much deposit you've saved. They assess your total debt-to-income ratio, your rental income assumptions, and whether you can service the new loan under stress-test conditions. From 1 February 2026, a debt-to-income lending limit has applied to all banks and authorised deposit-taking institutions. Each lender can approve up to 20 per cent of new investor loans to borrowers with a total DTI ratio of six times or greater, measured quarterly.
That means if your total borrowings across all loans equal six times your gross annual income or more, you may fall outside the standard assessment and into the portion of the lender's book that's capped. Non-bank lenders are not currently subject to this limit, which opens up alternative investment loan options for borrowers who sit above the threshold but still have strong serviceability.
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The lender will also assess rental income at a discounted rate, typically between 75 and 80 per cent of the market rent, to allow for vacancy periods and maintenance costs. If you're buying in Koo Wee Rup, where the rental market is shaped by a mix of local workers, families relocating from Melbourne's outer suburbs, and some seasonal demand, the rental appraisal you provide needs to reflect realistic market conditions. Overstating the rent to improve your serviceability position will be picked up in the lender's assessment or by their valuer.
How Debt-to-Income Limits Affect Borrowing Capacity
The DTI limit introduced in early 2026 applies separately to investor and owner-occupier lending. If your total debt is already high relative to your income, the lender may reduce the amount they're willing to approve or decline the application entirely, even if you meet all other criteria. This is particularly relevant for borrowers who already own one or more investment properties and are looking to expand their portfolio.
Debt servicing is assessed at a rate of at least 3.0 percentage points above the loan product rate, so even if you're applying for a loan at a variable rate that sits below 6 per cent, the lender will test your ability to repay at above 9 per cent. That buffer applies to every loan you hold, not just the new one. The more debt you carry, the harder it becomes to demonstrate capacity to take on another loan, regardless of how much equity you hold.
In a scenario where a buyer in Koo Wee Rup already holds two rental properties and wants to purchase a third, the lender will assess the rental income from all properties, the interest and principal repayments on all loans, and apply the serviceability buffer to the total exposure. If that borrower's DTI ratio is above six times income, they fall into the portion of the lender's lending cap and may be referred to a non-bank lender or asked to pay down existing debt before proceeding.
Fixed Rate or Variable Rate for Investment Loans
You can choose between a variable rate, a fixed rate, or a split loan that combines both. Variable rates give you flexibility to make extra repayments and access features like offset accounts, which can reduce the interest you pay over time. Fixed rates lock in your repayments for a set period, usually between one and five years, but they come with restrictions on extra repayments and often charge break costs if you exit the loan early.
For investment property finance, most borrowers favour variable rates or a split structure because it allows them to respond to changes in the rental market or their own financial position. If rental income drops due to vacancy or if interest rates fall and you want to refinance, a variable loan gives you more room to move. Fixed rates suit investors who want certainty over repayments for a defined period, but the trade-off is reduced flexibility and potentially higher exit costs if your circumstances change.
Interest-Only Investment Loans and Cash Flow
An interest-only loan allows you to pay only the interest portion of the loan for a set period, typically five years, without reducing the principal. This structure is common among property investors because it keeps repayments lower during the interest-only period and may improve cash flow, particularly if the property is negatively geared.
Under current prudential rules, a long-term interest-only loan with an LVR above 80 per cent and an interest-only period greater than five years is classified as non-standard, which affects how the lender prices and assesses the loan. Most lenders cap the interest-only period at five years, after which the loan reverts to principal-and-interest repayments. At that point, your repayments will increase, so you need to factor that change into your long-term cash flow planning.
Interest-only loans are not inherently better or worse than principal-and-interest loans. The structure you choose depends on your investment strategy, your tax position, and whether you plan to pay down the loan over time or hold it and eventually sell the property. We regularly see investors in Koo Wee Rup use interest-only loans to manage cash flow in the early years, particularly if they're also servicing an owner-occupied mortgage on their family home.
Negative Gearing and the 2027-28 Changes
Negative gearing allows you to offset the loss on your investment property against your other income, including salary and wages. If your rental income is less than the loan interest, property management fees, council rates, insurance, and other holding costs, the shortfall reduces your taxable income.
From the 2027-28 income year, losses on established residential investment properties purchased after 12 May 2026 can only be deducted against income from other residential properties, including capital gains on residential property sales. Losses can no longer be offset against salary or wage income. Properties acquired before that date, or properties under contract at 7:30pm AEST on 12 May 2026, are grandfathered and retain full negative gearing treatment. Eligible new builds purchased after that date are also exempt and retain full negative gearing indefinitely.
If you're purchasing an established home in Koo Wee Rup as an investment after 12 May 2026, you need to plan for a different tax outcome. The property may still be negatively geared, but the tax benefit is deferred until you have other residential property income to offset it against, or until you sell and realise a capital gain. This doesn't mean the investment is unviable, but it does mean your after-tax cash flow will be tighter in the early years unless you have other rental income in your portfolio.
What Happens If You Can't Save a 20 Per Cent Deposit
If you can only save a 10 or 15 per cent deposit, you can still proceed with an investment loan, but you'll pay LMI and the lender will apply a higher level of scrutiny to your application. The higher the LVR, the more the lender wants to see stable income, a clean credit history, and genuine savings that have been held in your account for at least three months.
Some lenders will accept a guarantor to help you avoid LMI, typically a parent who offers equity in their own home as additional security. The guarantor doesn't hand over cash, but they do take on a legal obligation to cover any shortfall if you default. That arrangement needs to be carefully structured, and the guarantor should get independent legal advice before signing. Most lenders will release the guarantor from the loan once you've paid down enough principal to bring the LVR below 80 per cent.
Another option is to delay the purchase and continue saving. Property markets move in cycles, and rushing into a purchase with a marginal deposit and tight serviceability can leave you exposed if interest rates rise, rental income drops, or your employment situation changes. There's no penalty for taking the time to build a stronger deposit and borrowing position before you commit.
Using Genuine Savings Versus Gifted Deposits
Lenders distinguish between genuine savings, which you've accumulated over time in your own accounts, and gifted funds or one-off windfalls like an inheritance or tax refund. Genuine savings are weighted more heavily in the assessment because they demonstrate a pattern of disciplined saving and financial stability.
If you're applying for an investment loan with a deposit that includes a cash gift from a family member, the lender will want a signed gift letter confirming the funds are not a loan and do not need to be repaid. Some lenders will accept 100 per cent gifted funds, while others require at least a portion of the deposit to be genuine savings, particularly if the LVR is above 80 per cent.
Call one of our team or book an appointment at a time that works for you. We'll review your deposit position, run the serviceability calculations across multiple lenders, and help you structure the loan in a way that fits your investment strategy and your current financial position.
Frequently Asked Questions
How much deposit do I need for an investment property?
Most lenders require a 20 per cent deposit to avoid Lenders Mortgage Insurance. You can borrow with a smaller deposit, but LMI will apply and add several thousand dollars to your upfront costs. The premium is calculated on a sliding scale based on the loan amount and loan-to-value ratio.
Can I use equity in my home as a deposit for an investment property?
Yes, you can use equity in your existing home or another property as a deposit without selling. The lender will assess the combined loan-to-value ratio across all properties and test your ability to service both loans at the same time, including a buffer of at least 3.0 percentage points above the interest rate.
What is the debt-to-income limit for investment loans?
From 1 February 2026, each bank can approve up to 20 per cent of new investor loans to borrowers with a total debt-to-income ratio of six times or greater. If your total borrowings exceed six times your gross annual income, you may fall into the lender's cap or need to consider a non-bank lender.
Does negative gearing still apply to investment properties purchased now?
Properties purchased before 12 May 2026 or under contract at that date retain full negative gearing treatment. For established properties purchased after that date, losses can only be offset against other residential property income from the 2027-28 income year. Eligible new builds purchased after that date remain fully negatively geared.
Should I choose a fixed or variable rate for an investment loan?
Variable rates offer flexibility to make extra repayments and access features like offset accounts. Fixed rates lock in your repayments for a set period but come with restrictions and potential break costs. Most investors choose variable or a split loan to retain flexibility as rental income or interest rates change.
