Lenders approve an investment loan when your income, debts and deposit show you can repay it comfortably at a higher rate than the one you will actually pay. For Carnegie residents looking at a property investor loan, preparing for that test matters more than chasing a headline rate.
How Do Lenders Assess an Investment Loan Application?
Lenders assess an investment loan application by testing whether you can afford the repayments at an interest rate well above the actual rate. Banks and other APRA-regulated lenders must test new borrowers at a rate at least 3.0 percentage points above the loan rate, and APRA confirmed that buffer at its 28 May 2026 announcement.
As an example, a loan priced at the illustrative rate of 6.75% p.a. would be tested at 9.75% p.a. That means your approval depends on how repayments look at the higher rate, not the rate on your loan offer. Non-bank lenders are not bound by that same buffer, although they set their own credit policies.
Lenders also ask about your existing debts, including the limit on credit cards, because a card limit can reduce what you can borrow even when the balance is zero. Cutting unused limits before you apply can improve your borrowing capacity. You can get a starting figure with our borrowing capacity tools.
How Much Rental Income Will a Lender Count?
APRA's guidance says prudent lenders count no more than 80 per cent of expected rent, which allows for periods when the property sits empty.
Consider a buyer who expects $600 a week in rent. A lender applying that 20 per cent haircut would count $480 a week towards the application. The rent that is left out is not related to agent fees or repairs, which are separate costs you still need to budget for.
Lenders also tend to place less weight on a rental appraisal than on actual rent received. If you are buying a property that has not been rented yet, ask your broker how the lender will treat the appraisal before you sign a contract. Each lender sets its own rules on this.
Does Interest Only Help You Borrow More?
No. An interest-only loan does not increase your borrowing capacity, and it can reduce it. Lenders are expected to assess these loans using principal and interest repayments over the remaining term after the interest-only period ends.
As an example, a 30-year loan with a 5-year interest-only period is assessed on repayments over the remaining 25 years. Those repayments are higher than on a 30-year principal and interest loan, so the maximum loan size can be lower.
The trade-off is that you do not reduce the loan balance during the interest-only period. When it ends, repayments rise, and you will need a new assessment if you want to extend the period. Interest-only investors also need to know that, under APS 112, a long interest-only term above 80 per cent LVR is treated as a non-standard loan, which can affect lender appetite.
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Book a chat with a Finance Broker at Finance Broker Melbourne today.
How Does Your Deposit and LVR Affect Approval?
Your deposit sets your loan-to-value ratio (LVR), and borrowing above 80 per cent LVR generally means paying Lenders Mortgage Insurance (LMI). The 80 per cent point is not a legal limit. It is the level above which LMI is generally required, and each lender sets its own maximum.
Borrowing above 80 per cent needs approval from both the lender and the mortgage insurer. The premium is paid by you and rises with the loan amount and LVR. Stamp duty may also apply to the premium. The trade-off is that a smaller deposit gets you into the market sooner, but it adds an upfront cost and a larger loan.
You may be able to use equity as your investor deposit, subject to lender approval and a serviceability assessment. Lenders generally value the security and assess the total debt against it, and each lender sets its own caps. Offset account balances do not reduce the loan amount for LVR purposes. Stamp duty on the purchase is a separate cost, and our stamp duty page explains how it fits into your budget.
Worked Example: Borrowing for an Investment Property in Carnegie
Consider a Carnegie homeowner who wants to buy an investment property and has a loan of $400,000 on their own home. They plan to borrow a further $500,000 for the investment. All the figures here are illustrative.
At the illustrative rate of 6.75% p.a. over 30 years, principal and interest repayments on $500,000 come to about $3,243 a month. Interest-only repayments at the same rate would be $2,813 a month. If the loan were interest-only for five years, the later repayments would be calculated over the remaining 25 years, which gives about $3,455 a month.
The lender would test the loan at 9.75% p.a., count 80 per cent of the expected rent, and include the existing $400,000 loan and any credit card limits. If the numbers fall short, the owner can look at clearing a card limit or borrowing a smaller amount. Where the numbers work, the owner chooses between lower early repayments with interest only and paying down the loan with principal and interest. A broker can compare lenders for that scenario and settle on a structure before a contract is signed.
A repayment calculator on our repayments page lets you test your own figures.
What Tax Rules Should You Check Before You Apply?
Tax rules affect how much an investment property costs you to hold, so check them with your accountant before you apply. Interest on money borrowed to buy a rental property is generally deductible to the extent the property is rented or available for rent. For a principal and interest loan, only the interest part is deductible, not the principal.
Negative gearing rules have changed. Losses on residential properties held at 7:30pm AEST on 12 May 2026 stay fully deductible against other income. Losses from eligible new builds can also continue to be deducted. From the 2027-28 income year, net rental losses on established residential properties bought after that time can only be offset against other residential property income, with excess losses carried forward.
Deductibility also depends on what you use borrowed money for. If you redraw or release equity for personal use, that part of the interest is not deductible. Your accountant can explain how these rules apply to your situation, and no tax result is certain.
Why Use a Broker for Investment Loan Options?
A broker can compare investment loans from the lenders on its panel, so you are not limited to one bank's policy on rent, deposits or interest-only terms. Lenders treat these areas differently, so the same application can be approved at one lender and declined at another.
The trade-off is that a broker needs time to gather your documents and compare options, so start before you find a property. If you are already a borrower, a loan health check or refinancing review can show whether your current structure helps or hinders the next purchase.
Call one of our team or book an appointment at a time that works for you. We will walk through your numbers and map out an application before you make an offer.
Frequently Asked Questions
How do lenders test an investment loan application?
Banks and other APRA-regulated lenders must test new borrowers at a rate at least 3.0 percentage points above the loan rate. This checks you could still afford repayments if rates rose.
How much rent will a lender count?
APRA's guidance says prudent lenders count no more than 80 per cent of expected rent. Each lender sets its own rules on the type of rental evidence it accepts.
Does an interest-only loan increase how much I can borrow?
No. Lenders assess interest-only loans using principal and interest repayments over the remaining term, so the maximum loan can be lower. You also do not reduce the balance during the interest-only period.
Do I need LMI for an investment loan?
LMI is generally required when the loan is above 80 per cent LVR. Each lender and insurer sets its own limits, and the premium is paid by you.
