Investment Loan Explained: What Every Smart Investor Needs to Know

If you're looking to grow your wealth through property, you've likely heard of an investment loan. It's gaining popularity among Aussie investors, especially in Brisbane, where major infrastructure projects and population growth are driving demand. 

New developments and emerging suburbs offer solid potential for rental income and long-term capital growth. A key driver behind this momentum is the investment loan, a type of loan used primarily to purchase property for investment returns.

From first-time investors to seasoned pros growing their portfolios, many Australians are using this loan type to climb the property ladder and take advantage of favourable market trends.

In this guide, we’ll unpack:

• What an investment loan really is
  
  
• How it works
  
  
• What’s required to apply
  
  
• Plus, expert tips to choose the right option
  
  

Let’s get into it.

Ready to invest but unsure where to start? Let our expert Brisbane brokers guide you through the investment loan process. Call (07) 3847 9450 or visit www.kellybrothersfinance.com.au to get personalised advice today.

What Is an Investment Loan?

An investment loan is a loan you take out specifically to buy an asset, typically real estate, that you won’t live in. Instead, the goal is to rent the property out and build wealth through capital gains over time. 

Investors may also benefit from tax perks, such as negative gearing and deductions for interest, property management fees, and other expenses.

How Is It Different from a Regular Home Loan?

The key difference lies in intent.

• A home loan helps you purchase a home to live in.
  
  
• An investment loan is for a property you plan to rent out and profit from.

This impacts how lenders assess your application, what interest rate you might get, and what fees may apply (like lenders mortgage insurance if your deposit is below 20%).

Common Types of Investment Loans:

• Interest-Only Loans: You pay only the interest for the first few years, keeping repayments low while relying on rental income to cover costs.
  
  
• Principal & Interest Loans: You pay off both the loan and interest, gradually building equity.
  
  
• Fixed Rate Loans: Lock in an interest rate for a set period. Good for budgeting.
  
  
• Variable Rate Loans: The rate changes with the market; risky but flexible.
  
  

Building your investment portfolio? Our Brisbane brokers specialise in investment loans and complex investor structures, including Self-Managed Super Fund strategies. Call us today at (07) 3847 9450 or visit kellybrothersfinance.com.au to learn more.

How Does an Investment Loan Work?

While similar to a home loan, an investment loan differs in repayment structure and how lenders assess your finances and the property’s income potential.

Here’s a simple breakdown of the main elements:

Deposit

You’ll usually need a 10–20% deposit, but a larger one lowers your Loan-to-Value Ratio (LVR). Keeping your LVR below 80% can help you avoid Lenders Mortgage Insurance and save thousands of dollars.

Loan Term

Most investment loans run for 25 to 30 years, similar to regular home loans. Some investors opt for longer terms to reduce their monthly repayments, although this can result in higher total interest over time.

Interest

Interest is charged on the loan balance, and your interest rate depends on the lender, your LVR, and whether your loan is fixed or variable.

• Fixed interest rates lock in your repayments for a set period.
  
  
• Variable rates can change depending on the RBA cash rate and market conditions.
  
  

Repayments

There are two main repayment types:

• Interest-only: You only pay the interest for a set period (usually 1–5 years). It’s a popular option for tax planning and improving cash flow.
  
  
• Principal & Interest: You gradually repay both the borrowed amount and interest, helping you build equity over time.
  
  

Example Scenario:

Let’s say James wants to invest in a Brisbane rental property worth $600,000.

• Deposit (20%): $120,000
  
  
• Loan amount (80%): $480,000
  
  
• Loan term: 30 years
  
  
• Interest rate: 5.5%
  
  
• Repayment type: Interest-only for 5 years
  
  

Sample Calculation:

Year 1–5 (Interest-Only Period)

• Annual Interest: $480,000 × 5.5% = $26,400
  
  
• Monthly Repayments: $26,400 ÷ 12 = $2,200/month

After Year 5 (Switches to Principal & Interest)

• The new monthly repayment will increase, as he’ll now start repaying the loan principal as well, at roughly $2,725/month over the remaining 25 years, depending on the rate at the time.
  
  

This setup offers James lower repayments upfront, which may be beneficial if he relies on rental property income or aims to improve his cash flow early on. But when the interest-only period ends, he’ll need to budget for higher repayments, so planning is key.

Not sure how much you can borrow for your next property investment? Our Brisbane brokers utilise real data and tools, such as borrowing power calculators, to provide you with clear answers. Reach out to us at (07) 3847 9450 or visit kellybrothersfinance.com.au.

Investment Loan Requirements and Eligibility

Before applying for an investment loan, it’s important to know what lenders are looking for. Meeting these requirements upfront can speed up approval and improve your loan options.

Here’s a quick breakdown of what most lenders expect:

• Deposit: A deposit of 10–20% is standard. A higher deposit helps lower your Loan-to-Value Ratio (LVR) and can eliminate the need for Lenders Mortgage Insurance (LMI).
• Credit Score: A good credit score (usually 650 or above) shows you’re a reliable borrower. A poor credit history may limit your loan choices or result in higher interest rates.
• Stable Income: Lenders will assess your employment history, salary, and any rental income to ensure you can meet repayments—even during property vacancies.
• Debt-to-Income Ratio: They’ll look at how much debt you currently carry compared to your income. Maintaining a low ratio improves your borrowing power.
• Documents Required: 
• Recent payslips and/or rental statements
• Tax returns (often last 2 years)
• A detailed list of your assets and liabilities
• Proof of ID and legal documents
• Property valuation or contract of sale
  
  

Tips for Choosing the Right Investment Loan

When it comes to property investment, choosing the right loan can make a big difference to your long-term financial outcome. 

Here are six practical tips to guide your decision-making:

1. Fixed vs Variable Rates

Choosing between fixed or variable interest rates affects your cash flow and financial predictability. Fixed rates offer stability, while variable loans can benefit you when market value trends downward, but can cost more if rates rise unexpectedly.

2. Compare Property Costs and Fees

Don’t just focus on the loan itself; look at all the property costs involved. These include stamp duty, legal fees, land tax, conveyancing fees, and even building insurance. A cheaper loan on paper might cost more when you factor in these additional charges.

3. Understand Deposit Requirements and Borrowing Power

Most lenders require you to meet minimum deposit requirements, usually around 10–20% of the property value. Use a borrowing power calculator to understand how much you can afford to borrow and which personal loans or equity options may boost your capacity.

4. Weigh Up Tax Benefits and Deductions

Many investors are drawn to tax benefits like tax deductions on loan interest, property management fees, and depreciation. But don’t forget future liabilities like capital gains tax when you eventually sell the property.

5. Check the Property’s Market Data and Rental Yield

Research market data to understand how the suburb is performing. Factors like vacancy rates, population growth, and infrastructure developments influence rental yield and future market value. A good real estate agent can provide insight into both short-term returns and long-term growth potential.

6. Work with a Broker or Lending Specialist

A broker or lending specialist can help compare real estate investment loan options tailored to your goals. They’ll walk you through the fine print, help assess your borrowing power, and ensure all aspects, from stamp duty to land tax, are factored in.

Don’t guess your investment loan strategy. Build it with a pro. Our experienced Brisbane brokers help you structure your loan for maximum tax efficiency and long-term returns. Call (07) 3847 9450 or visit kellybrothersfinance.com.au to get started.

Frequently Asked Questions (FAQs)

What is the 2% rule?

The 2% rule is a quick way to gauge rental cash flow, suggesting monthly rent should equal 2% of the purchase price. It's harder to meet in expensive property types or during market volatility.

What type of loan is best for an investment property?

The best loan depends on your goals. Interest-only investor home loans suit short-term cash flow needs, while portfolio loans, home equity loans, or Self-Managed Super Fund options suit long-term strategies and multiple properties.

Which loan is best for investment?

There’s no one-size-fits-all, but conventional loans, portfolio loans, and home equity loans are popular choices. The right loan depends on your credit report, income, goals, loan duration, and plans for portfolio diversification.

How does an investment loan work?

An investment loan is money borrowed to purchase a property you plan to rent out, not live in. Lenders assess your financials, including your credit report and potential rental income. You'll also need to factor in upfront costs like stamp duty (use a stamp duty calculator) and ongoing expenses tied to buying and owning real estate.

Where to get an investment loan?

You can get investment loans from banks, non-bank lenders, or through brokers’ assistance. Many investors compare options online using tools like a stamp duty calculator. Lenders often offer conventional loans, home equity loans, and options tailored for Self-Managed Super Fund purchases.

How can brokers help with investment loans?

Brokers match you with the best investor home loans based on your finances and goals. They handle paperwork, improve your credit report presentation, and guide you through market volatility and loan duration choices. They're invaluable for complex cases like portfolio loans or Self-Managed Super Fund purchases.

Final Thoughts

Navigating the world of investment loans might seem overwhelming at first, but understanding how they work and how they align with your property investment goals can make a big difference. From choosing the right loan type to calculating property costs, rental yield, and understanding your tax benefits, it’s all about doing your due diligence. 



Whether you’re just starting or growing your portfolio, speaking with a qualified broker is always a smart move before making any big decisions.

Ready to take the next step? Get tailored advice from the team at Kelly Brothers Finance. Our team is based in North Brisbane and services the wider Brisbane region. Call us at (07) 3847 9450 for personalised loan advice today.