3 types of investment property loans you should know about

Choosing the right type of loan can be just as important as choosing your investment property. It’s crucial to get both right for property investment success.

It's important to understand the types of finance available for investment properties before you start your journey as a property investor. Here are the three major types of loans to consider:

1.   Principal and interest loans

2.   Interest-only loans

3.   Equity loans

Let’s look at each one in turn, including their benefits and disadvantages.

Principal and interest loans

This requires you to pay off the amount you borrow plus interest over the loan term, like a standard owner-occupier home loan.


  • You increase your equity (ownership) in your property over time as you make your regular repayments and your loan Balance reduces.
  • You will own the property outright at the end of your loan term.


  • Your regular loan repayments will be higher than they will be with an interest-only loan.
  • Your tax-deductible interest expense will reduce over time as your investment property loan reduces.

Interest-only loans

Interest-only loans are the most common type of investment property loan in Australia. They only require you to pay interest on the amount you borrow.


  • Your regular loan repayments will be lower because you are only paying interest. This will increase your cash flow.  
  • You will maximise your tax-deductible interest expense on your investment property.


  • You don’t build any equity with your regular interest repayments. However, you can build equity by your property increasing in value over time.
  • If, in the unlikely event that your property decreases in value, you can end up owing more than you borrowed. However, Australian property prices in strategic locations have a long-term record of growth.
  • Interest-only loans are usually only available for 5-year terms. After that period, you either need to take out another interest-free loan, or a principal and interest loan, or an equity loan.
Interest-only loans are the most common type of investment property loan in Australia for maximum tax deductions.


Equity loans

Equity loans require you to use the equity you have in one property (for example, your residential home) as the deposit for an investment property loan.


  • Most lenders will let you borrow up to 80% of the equity that you have in another property to help fund your investment property purchase.
  • Equity loans can increase your borrowing power and help you to build a property portfolio more quickly.


  • The more equity you use for your investment property deposit/s, the higher your overall debt level and repayments will be.
  • You may need to refinance your equity loan if you want to sell the property that you have used as equity for it.  

How we can help

Unsure of your investment strategy? That’s okay.  DPN can help you to choose the right investment property loan for your needs and goals. Our investment focused brokers will review more that 30 loans to find the right one for you and consider the smartest and most tax-effective way to structure your finances.  

Contact us today to see how we can help.

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