When most investors think about their investment loan, they focus almost entirely on the rate. The structure of the loan often has a far greater long-term impact.
Interest-only loans maximise cash flow and keep deductible interest expenses higher. But they do not suit every strategy. We recommend the right structure for your specific goals - not a one-size-fits-all approach.
Cross-collateralisation means using multiple properties as security for a single loan. This can significantly limit your flexibility. We structure investment loans to keep each property's security separate wherever possible.
An offset account reduces the interest payable on an investment loan - but it also reduces the deductible interest expense. We structure your loans to maximise both cash flow and tax efficiency.
It is significantly harder to restructure loans after the fact. Getting the structure right before settlement protects your ability to build a portfolio over time.
Most investors focus on getting the lowest rate. The structure of the loan - how it is set up, whether it is interest-only or principal and interest, how it connects to your other lending, and which lender it is with - has a greater impact on your long-term financial outcome than a 0.1% rate difference.
A poorly structured investment loan can contaminate your tax deductions, restrict your ability to access equity for future purchases, and create a cross-collateralisation problem that limits your options for years. Getting it right from day one costs nothing extra and protects you from expensive mistakes.
Most investment property advisers and accountants recommend interest-only loans for investment properties, at least in the early years. The reason is twofold: cash flow and tax.
Interest-only repayments are lower than principal and interest repayments, which improves your cash flow from the investment. And because interest on an investment loan is tax deductible but principal repayments are not, interest-only maximises your deductible expense. The money you save on principal repayments can be directed to an offset account on your home loan instead - paying down non-deductible debt more efficiently.
The strategy: use interest-only on your investment loan and redirect the cash flow saving into an offset account on your home loan. You reduce non-deductible debt faster while maintaining full deductibility on the investment loan. Discuss this with your accountant before implementing.
The ATO requires investment loans to be completely separate from personal borrowings for interest to remain fully deductible. Mixing investment and personal funds in the same account - even once - can contaminate the deductibility of the interest on that account permanently.
This means: a dedicated offset account for your investment property (separate from your home loan offset), a separate transaction account for rental income and expenses, and no personal spending from the investment loan account. Lendology sets up the structure correctly from day one so this contamination risk is eliminated.
Cross-collateralisation means using one property as security for another property's loan. Banks sometimes encourage this structure because it gives them more security. It creates serious problems for investors as their portfolio grows.
When properties are cross-collateralised, you cannot sell or refinance one without the bank's involvement in the other. Accessing equity requires the bank to revalue both properties. And if one property falls in value, it can affect the LVR position of the other. Lendology structures investment loans as standalone lending wherever possible - each property secured against itself only.
Yes, in most cases. Keeping each investment property in its own standalone loan, ideally with its own lender, maximises flexibility and protects each property from issues affecting the others.
Generally yes, provided the loan is used entirely for investment purposes and kept completely separate from personal borrowings. Mixed-use accounts can contaminate deductibility. Confirm your specific situation with your accountant.
You apply to the lender for an equity release - a top-up of the existing loan secured against the investment property. The lender revalues the property and releases up to 80% of the new value minus the existing loan balance. Lendology manages this process.
For most investors, interest-only is more tax-efficient because interest is deductible but principal repayments are not. The right answer depends on your tax position, cash flow and investment strategy. Discuss with your accountant and Lendology before deciding.