When to Use Equity vs Savings for Your Investment Deposit

How Much Deposit Do You Need for an Investment Property?

Most lenders require a minimum 20 per cent deposit for investment property purchases. Providing this amount allows you to avoid Lenders Mortgage Insurance and gives you access to the widest range of investment loan products and pricing. A smaller deposit is possible, but it typically attracts LMI and narrows your options.

The 20 per cent figure covers the deposit itself, not the additional costs that sit outside the loan amount. Brisbane investors also need to fund stamp duty, legal fees, building and pest inspections, and any body corporate reports. For a property at $600,000, that means $120,000 for the deposit plus another $20,000 to $25,000 in settlement costs, depending on the property type and whether you qualify for any stamp duty concessions.

Funding Your Deposit: Savings or Equity?

You can fund an investment deposit using genuine savings, equity in your home, or a combination of both. Each approach affects your borrowing capacity differently.

Savings provide a clean structure. You apply for a single loan secured against the investment property, and your repayment obligation is straightforward. Lenders assess your ability to service the new debt using rental income and your existing income, applying a serviceability buffer of 3 percentage points above the loan rate and usually shading the rental income by 20 per cent to account for vacancy and maintenance.

Equity requires two facilities: the investment loan itself and either a refinance of your home loan or a separate equity release. This increases your total debt and your monthly repayment obligations across both properties. Serviceability becomes tighter because the lender must be satisfied you can service your existing home loan, the new investment loan, and any top-up or line of credit used to access the deposit funds.

Consider an investor who holds a home in Paddington valued at $950,000 with $420,000 owing. Usable equity sits at around $340,000, calculated as 80 per cent of the property value less the existing debt. That investor can access enough equity to fund the deposit and costs for an investment property without selling assets or waiting to accumulate further savings. However, the total monthly repayment rises significantly, and the lender applies the serviceability buffer to the combined debt.

LVR, LMI and Portfolio Strategy

Loan to value ratio determines whether you pay Lenders Mortgage Insurance and influences the interest rate you receive. At 80 per cent LVR or below, you avoid LMI and typically secure a lower rate. Above that threshold, LMI is added to your loan or paid upfront, and your rate may increase.

Brisbane investors using equity to fund deposits sometimes structure loans at exactly 80 per cent LVR on both properties to maintain clean pricing and avoid insurance costs. Others accept a higher LVR on the home loan to preserve cash flow or to move quickly on an opportunity. The decision depends on your income, existing debt, and whether you plan to acquire further properties in the next 12 to 24 months.

If you intend to build a portfolio, keeping your LVR at or below 80 per cent on each property preserves future borrowing capacity and reduces the compounding effect of serviceability calculations across multiple loans.

Debt-to-Income Caps and Investor Lending

From 1 February 2026, lenders have been restricted in how much new investor lending they can write at a debt-to-income ratio of 6 times or greater. The cap sits at 20 per cent of new investor loans for each lender, measured quarterly for larger institutions and on a rolling four-quarter basis for smaller ones.

This prudential setting affects investors with high existing debt relative to income, even when rental income is strong. If your total debt across all properties and loans exceeds six times your gross income, your application may be declined or referred to a specialist lender outside the major banks.

In practical terms, an investor earning $120,000 annually can hold up to $720,000 in total debt before hitting the cap. This includes the home loan, any investment loans, and personal debt such as car finance. Going above that threshold does not make you ineligible, but it does limit which lenders can approve your application and may result in a higher rate or more restrictive loan features.

Interest Only vs Principal and Interest for Investors

Most investors choose interest only repayments for the first few years to improve cash flow and direct surplus funds toward either offset accounts or additional property acquisitions. Interest only terms are typically available for up to five years on investment loans, after which the loan reverts to principal and interest unless you apply to extend the interest only period.

The appeal is straightforward: lower monthly repayments mean a rental property is more likely to be cash flow neutral or only slightly negative, even after accounting for vacancy, maintenance and body corporate fees. This structure also maximises your ability to claim interest as a deductible expense, provided the property is genuinely available for rent.

Principal and interest repayments reduce your loan balance over time and build equity faster, but the higher repayment increases the shortfall between rent received and total costs. Some investors prefer this approach for properties they intend to hold long term or where rental income is strong enough to cover the higher repayment comfortably.

Your repayment structure should align with your tax position, cash flow, and investment horizon. If you plan to acquire further properties within a few years, interest only may give you more flexibility. If this is your only investment and you want to reduce debt over time, principal and interest may suit.

Tax Changes from 1 July 2027

New investment properties purchased after 7:30pm AEST on 12 May 2026 will be subject to negative gearing quarantine from 1 July 2027 unless they meet the definition of an eligible new build. Rental losses on affected properties can only be offset against other residential rental income or carried forward. They cannot be offset against salary or wages.

Properties held before that date, including those under contract prior to 7:30pm on 12 May 2026, retain access to full negative gearing. This grandfathering applies until you sell the property. Brisbane investors who purchased established homes or units in suburbs such as New Farm, West End or Wilston before the cut-off can continue to claim rental losses against other income indefinitely, provided they hold the property.

Eligible new builds remain fully negatively gearable even if purchased after the announcement date. A new build is defined as a dwelling constructed on previously vacant land or a development that increases the total number of dwellings on the site. A knock-down rebuild that replaces one dwelling with one dwelling does not qualify, nor does a substantial renovation of an existing property.

From a deposit perspective, new builds often require different structuring. Many are purchased off the plan, meaning you pay a deposit on contract but do not settle until construction completes, sometimes 18 to 24 months later. Lenders will pre-approve finance, but the formal loan is not drawn until settlement. Your financial position must remain stable throughout that period, and lenders will reassess serviceability closer to settlement.

Variable vs Fixed Rates for Investment Loans

Variable rate investment loans give you access to offset accounts and allow unlimited additional repayments without penalty. Most investors favour variable rates because the offset facility reduces the interest charged without reducing the deductible interest expense. You can park surplus income or rent received in the offset account and reduce the effective rate on your loan while keeping those funds accessible.

Fixed rates lock in your repayment for a set term, typically one to five years, but remove access to offset and limit additional repayments to a specified annual amount, usually $10,000 to $30,000 depending on the lender. Breaking a fixed rate early can result in significant costs if rates have fallen since you fixed. For investors, the loss of offset functionality usually outweighs the certainty of a fixed repayment, particularly when rental income fluctuates or when you want the flexibility to pay down debt using rental surplus.

Some investors split their loan between variable and fixed to access both offset and rate certainty, though this adds complexity and may involve multiple loan accounts.

Selecting the Right Property and Loan Structure

Brisbane's inner and middle-ring suburbs continue to attract investors due to proximity to employment hubs, transport links and established rental demand. Properties in Coorparoo, Greenslopes and Moorooka typically offer a mix of unit and house stock, with rental yields varying depending on the dwelling type and condition.

Rental yield matters, but it should not be the sole driver. A high yield property in a suburb with weak capital growth may underperform over time compared to a lower yielding property in a tightly held area with strong long-term demand. Your loan structure should reflect the property's characteristics: a positively geared property in a regional area may suit principal and interest repayments, while a high-growth unit in Fortitude Valley or South Brisbane may justify interest only to preserve cash flow while the asset appreciates.

When assessing investment loan options, consider whether the lender allows portability, whether you can increase the loan limit later without a full reapplication, and whether the loan can be split or restructured as your portfolio grows. These features matter more than a small difference in rate, particularly if you plan to hold the property for more than a few years or to acquire additional investments.

Call one of our team or book an appointment at a time that works for you to discuss your deposit options, loan structure and how the recent tax changes affect your investment plans. We work with lenders across Australia and can help you access investment loan products suited to your goals and the Brisbane market.

Frequently Asked Questions