The easiest way to finance an investment apartment

Loan structure matters more than rate alone

Most apartment investors start by comparing rates, but the loan structure determines whether you can claim interest, access equity later, and quarantine losses under the new rules. The borrowing itself is only half the equation.

Consider a Carlingford resident purchasing a two-bedroom apartment in Parramatta as an investment. The property settles in September 2026, which means it falls under the new negative gearing rules taking effect from 1 July 2027. If they choose a principal and interest loan, the interest portion shrinks each month, reducing claimable expenses year on year. If they choose interest only with an offset account on the wrong loan split, part of their interest deduction disappears. The structure locks in before settlement, and changing it later usually means refinancing.

Interest on borrowings used to acquire or hold residential rental property is deductible to the extent the property is rented or held to produce assessable income. That deduction continues under both the old and new negative gearing frameworks, so maximising the interest component while keeping offset funds separate becomes the priority for investors focused on tax efficiency.

Interest only or principal and interest for an apartment purchase

Interest only loans keep monthly repayments lower and preserve the full loan balance for deduction purposes. Principal and interest loans reduce the loan balance over time, which lowers the interest expense and the amount you can claim.

In our experience, apartment investors in Carlingford who are building a portfolio tend to choose interest only for the first five years. The lower repayment improves cash flow, and if the property runs at a loss, that loss can still be carried forward and offset against future rental income or capital gains under the new rules. Net rental losses from residential dwellings acquired on or after 7:30pm AEST on 12 May 2026 are quarantined from 1 July 2027 and can only be offset against other residential rental income or carried forward. Investors holding other rental property can use those losses sooner. Investors with one property carry them forward until sale or positive cash flow.

Interest only terms run for up to five years before reverting to principal and interest unless you apply to extend. A long-term interest-only residential loan must be classified as non-standard where the LVR exceeds 80 per cent and the contractual interest-only period is greater than 5 years or is unspecified. Lenders apply stricter serviceability at higher LVRs, so most investors accept the standard five-year term and refinance or extend before it expires.

Variable or fixed rate for investment property

Variable rates allow you to make extra repayments, redraw funds, and access offset accounts without penalty. Fixed rates lock in your repayment for one to five years but typically prevent extra repayments above a small annual threshold and charge break costs if you refinance early.

For an apartment purchase in late 2026, most investors in the Carlingford area are choosing variable. Rental income fluctuates with vacancy periods, and body corporate levies can increase mid-year. A variable loan gives you room to adjust. You can switch part of the loan to fixed later if rates start climbing, but moving from fixed to variable before the term ends usually triggers a break cost calculated on the lender's wholesale funding position.

If you do fix part of the loan, keep it under 50 per cent of the total. That way, the variable portion remains large enough to absorb extra payments if your tenant stays longer than expected or you release equity from another property.

Loan to value ratio and lenders mortgage insurance

ADIs generally require LMI on residential loans where the LVR exceeds 80 per cent. For investment loans, most lenders cap the LVR at 90 per cent even with LMI, and some cap it at 80 per cent for apartments in certain postcodes or buildings with known defects.

Carlingford buyers purchasing an apartment in nearby suburbs such as Epping, Ryde or Parramatta typically borrow at 80 per cent LVR to avoid the premium. On a property valued at the current median, that means a deposit of 20 per cent plus another few thousand for stamp duty, legal fees, and building and pest inspection. If you borrow above 80 per cent, the LMI premium is capitalised into the loan, but the premium is not deductible as a borrowing expense and must be amortised over the loan term for tax purposes. You also pay a higher interest rate in most cases, and serviceability is assessed more conservatively.

Where you hold equity in your Carlingford home and want to use it as security for the apartment purchase, lenders treat the total exposure across both properties when calculating LVR. Where multiple loans are secured over the same property in sequential ranking, the loan amounts are aggregated for LVR purposes under APS 112. If your home loan sits at 70 per cent LVR and you want to borrow another 10 per cent against it for a deposit, your total LVR on that property becomes 80 per cent. The investment loan itself is then written at 80 per cent LVR on the apartment, keeping both properties within the LMI threshold.

Serviceability and rental income

APRA requires ADIs to assess a new borrower's capacity to service a residential mortgage at an interest rate at least 3 percentage points above the loan product rate. That buffer applies to both your existing home loan and the new investment loan, so even if you are paying 6 per cent today, the bank tests you at 9 per cent.

Lenders will include a portion of the expected rental income in your serviceability calculation, typically 80 per cent of the market rent to account for vacancy and management costs. If the apartment you are purchasing rents for $650 per week, the lender credits you with $520 per week in income. They also deduct the loan repayment, body corporate fees, council rates, insurance, and an allowance for maintenance. From 1 February 2026, each ADI may fund no more than 20 per cent of new investor loans at a DTI of 6 times or greater. If your total debt across all loans is approaching six times your household income, the lender may decline the application or require a larger deposit to bring the loan amount down.

For dual-income households in Carlingford, this is rarely an issue at 80 per cent LVR. For single applicants or those with existing investment debt, it can be the binding constraint. We regularly see applications where the borrower has sufficient deposit but cannot service the loan at the buffer rate once the new apartment is added to the calculation.

Offset accounts and investment loans

Offset account balances do not reduce the loan amount for LVR purposes under APS 112. They do, however, reduce the interest charged, and that creates a tax problem for investors.

If you hold savings in an offset account linked to your investment loan, the interest you pay each month is lower, and so is the amount you can claim as a deduction. The solution is to keep the offset account linked to your owner-occupied home loan and keep the investment loan separate with no offset. That way, the investment loan accrues interest on the full balance, maximising your claimable expense, while your savings reduce the non-deductible interest on your home.

This requires a clear split between the two loans at the time of purchase. If you refinance later and the loans are cross-collateralised or combined, the ATO will disallow part of the interest deduction based on the private use portion. The loan purpose must be documented, and funds must not be redrawn for private purposes after settlement.

Claimable expenses beyond interest

Other ongoing holding costs such as council rates, insurance, property management fees, repairs and depreciation are deductible under existing ATO rules for the period the property is rented or genuinely available for rent. For apartments, body corporate fees are fully deductible, and these can run anywhere from $800 to $1,500 per quarter depending on the building.

Depreciation on the building and fixtures is claimed using a quantity surveyor's report. For apartments constructed after 1985, you can claim capital works deductions at 2.5 per cent per year over 40 years, plus plant and equipment depreciation on items such as carpet, blinds, and appliances. Older apartments still qualify for plant and equipment deductions even if the building itself has been fully depreciated. The report costs around $600 and is itself a deductible expense in the year incurred.

Stamp duty and legal fees on the purchase are not immediately deductible but are added to the cost base for capital gains tax purposes when you sell. Loan establishment fees, valuation fees, and mortgage insurance premiums are deductible over the life of the loan, typically five years.

What happens to properties purchased before May 2026

For residential investment properties held at 7:30pm AEST on 12 May 2026, the existing negative gearing rules continue to apply until the property is sold. If you are looking at an apartment you already own and considering whether to sell or hold, the old rules still apply. Net rental losses can be offset against salary and wages each year, and the 50 per cent capital gains tax discount applies to any gain when you sell.

If you are purchasing now, the new rules apply. Properties acquired between 7:30pm AEST on 12 May 2026 and 30 June 2027 may be negatively geared under the existing rules until 30 June 2027 only. After that, losses are quarantined and carried forward. This does not make the investment unviable, but it does change the cash flow profile. Investors who were relying on the tax refund to cover part of the shortfall now need to fund the full gap from their own income until the property turns positive or they sell.

When to refinance an investment loan

Refinancing makes sense when your current rate is more than 0.3 per cent above what you can access elsewhere, or when you need to release equity for another purchase. The 3 percentage point serviceability buffer was maintained in APRA's macroprudential policy update of 28 May 2026. That buffer applies to refinances as well as new loans, so if your income has not increased since you took out the original loan, you may not qualify for additional borrowing even if your property has increased in value.

For Carlingford investors who purchased an apartment in the past few years and want to access equity for a second property, refinancing allows you to increase the loan amount up to 80 per cent LVR without LMI, provided you meet serviceability. The equity release is not a taxable event, but the interest on the new borrowing is only deductible if the funds are used to purchase another income-producing asset. If you use the equity to renovate your home or buy a car, that portion of the interest is private and cannot be claimed.

You can find additional guidance on structuring loans for portfolio growth on our investment loans page, or if you are weighing up whether to buy in your own name or through a trust, call one of our team or book an appointment at a time that works for you.

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