Investment loans: the key differences
Refinancing an investment property follows the same broad process as owner-occupier refinancing, but several features are specific to investment lending that affect your rate, structure, and strategy.
Rate premium
Investment loans carry a rate premium above equivalent owner-occupier loans — typically 0.2–0.5% higher. This reflects the higher default risk lenders associate with investment properties (investors are statistically more likely to sell or stop paying in a downturn than owner-occupiers). In 2025, competitive investment variable rates start from approximately 5.89–6.09% p.a., compared to 5.69% for owner-occupier loans.
Interest-only availability
Interest-only (IO) terms are significantly more available on investment loans than owner-occupier loans. APRA's serviceability rules mean most lenders offer IO terms of up to 5 years on investment properties, with the option to roll into further IO terms upon review. This is a meaningful structural advantage for active investors.
Interest-only vs principal and interest: the full analysis
| Factor | Interest Only | Principal & Interest |
|---|---|---|
| Monthly repayment | Lower | Higher |
| Interest rate | ~0.1–0.2% higher | Lower |
| Tax deductibility | Full interest deductible | Full interest deductible |
| Equity building | None (interest period) | Builds each payment |
| Cash flow | Better | Worse |
| Best for | Accumulation phase, negative gearing | Approaching retirement, positive yield focus |
The common misconception is that P&I is always better because you build equity. For active property investors in the accumulation phase, IO loans free up cash flow that can be deployed into further investments, emergency funds, or owner-occupier debt reduction (which is not tax-deductible). The right structure depends on your overall portfolio strategy, not a one-size-fits-all rule.
Tax note: Both IO and P&I investment loans allow full deduction of the interest component. On a P&I loan, only the interest portion of each repayment is deductible — the principal portion is not. Over time, as the principal reduces, your deductible interest decreases. This is not a reason to avoid P&I, but it is a factor in the total cost-of-ownership calculation for negative gearing strategies.
How lenders assess rental income
When you refinance an investment property, the lender includes rental income in your serviceability assessment. How generously they do this varies significantly:
| Lender approach | Income counted | Impact on borrowing capacity |
|---|---|---|
| Conservative (some majors) | 70% of gross rental | Lower |
| Standard | 75–80% of gross rental | Moderate |
| Generous (some non-banks) | 90–100% of gross rental | Higher |
On a property generating $3,000/month gross rent, the difference between 70% and 90% assessment is $600/month in recognised income — which can be the difference between qualifying for your next investment loan or not. Lender selection for the rental income assessment policy is one of the highest-value decisions a broker makes for investor clients.
Portfolio restructuring: when it makes sense
If you own multiple investment properties, refinancing them simultaneously rather than one-by-one often produces better outcomes. Reasons to consider a portfolio review:
- Rate consolidation — different properties may be on different rates at different lenders, accumulated over years of buying. Reviewing all simultaneously identifies which rates are uncompetitive and which lenders offer the best overall terms for your portfolio.
- Cross-collateralisation risk — some investors have unknowingly allowed their lender to cross-collateralise properties (using multiple properties as security for each other). This creates risk and reduces flexibility. A portfolio review identifies and unwinds these structures.
- IO term management — if multiple properties are approaching IO term expiry simultaneously, proactive refinancing prevents an unexpected jump to P&I repayments on multiple loans at once.
- Equity release for further acquisition — if property values have grown, a portfolio refinance can release equity from existing properties to fund deposits on new acquisitions, without requiring a full new property transaction.
Documents you will need for investment refinancing
- Last 2 years' tax returns — showing rental income and deductions for each investment property
- Current rental statements or lease agreements — confirming current rent being received
- Most recent loan statements for all investment and owner-occupier loans
- Council rates notices for each investment property
- Latest 2 payslips (or tax returns if self-employed)
- 3 months bank statements — showing rental income credits and loan repayment debits
The 2025 investment property opportunity
Australian rental yields have improved significantly through 2024–2025 as rents outpaced property value growth in many markets. This has shifted many investment properties from negatively geared (net cost after interest) to neutrally or positively geared. The combination of improving yields and falling interest rates — even at the premium investment rate tier — is making investment property refinancing particularly compelling in 2025.
Investors who have not reviewed their investment loan rates in the past 18 months are very likely paying 0.7–1.0% above current market rates. On a $600,000 investment loan, that is $350–$500/month in avoidable interest expense.