Proven Tips to Save on Investment Property Deposits

An investment property deposit typically sits between 10 and 20 per cent of the purchase price, though lenders apply different pricing and conditions depending on how much you put down.

Most lenders prefer a 20 per cent deposit on investment purchases because it avoids Lenders Mortgage Insurance and keeps the loan to value ratio under the threshold where capital requirements increase. Anything below that triggers LMI, which is a one-off premium charged to protect the lender if you default. You pay the premium, and it can add thousands to your upfront costs depending on the loan amount and how far below 20 per cent you go.

Can You Use a 10 Per Cent Deposit on an Investment Loan?

You can borrow with a 10 per cent deposit, but it costs more and limits your lender options. LMI premiums rise sharply once the deposit falls below 20 per cent, and some lenders cap investment lending at 90 per cent loan to value ratio or require higher income and serviceability buffers. In our experience, borrowers with a 10 per cent deposit still get approved regularly, but you need clean credit, stable income, and enough capacity to service the loan at a rate around 3 percentage points above the actual product rate. That serviceability buffer is set by the regulator and applies to all new investment loans through banks and other lenders regulated by APRA.

Consider a buyer looking at a unit priced around the current median for their target area. With a 10 per cent deposit, they would cover the deposit itself plus LMI, which might add another $8,000 to $12,000 depending on the loan size, plus stamp duty and settlement costs. The total upfront requirement often lands between $35,000 and $50,000 once everything is accounted for. That same buyer with a 20 per cent deposit avoids LMI entirely, bringing the total cash requirement down even though the deposit itself is larger.

How Equity in Your Home Can Replace Cash Deposits

If you own property already, you can use equity instead of saving a separate cash deposit. Lenders let you borrow against the value of your existing home to fund the deposit and costs on the investment purchase, provided your total borrowing across both properties does not push the combined loan to value ratio above 80 per cent in most cases. Some lenders allow higher ratios, but serviceability becomes the binding constraint once debt levels rise.

In a scenario where your home is worth $600,000 and you owe $300,000, you have $300,000 in equity. The lender will typically let you access up to 80 per cent of the property value, which is $480,000, meaning you could borrow an additional $180,000 without triggering LMI on the existing property. That $180,000 can cover a deposit on an investment property as well as stamp duty and other upfront costs. The key limitation is serviceability, because the lender assesses your ability to repay both the existing home loan and the new investment loan at the same time, including the buffer rate.

Using equity keeps your cash in reserve for other purposes and lets you move faster when a property becomes available. We regularly see this structure with clients who want to build a portfolio without waiting years to save another deposit. The refinancing process to release equity usually takes two to four weeks, depending on the lender and how current your valuation is.

What Lenders Count as Genuine Savings

Lenders distinguish between genuine savings and funds that appear shortly before you apply. Genuine savings are typically defined as funds held in your own name for at least three months, built up through regular deposits or held consistently in a savings account, term deposit, or offset account. Money from a recent gift, sale of assets, or a windfall payment may not qualify, depending on the lender and the overall deposit size.

If your deposit includes funds that do not meet the genuine savings test, some lenders increase the minimum deposit requirement or decline the application entirely. Others accept a letter of gift from a parent or family member, provided the letter confirms the funds are a gift and not a loan. The threshold varies, but in practice, if you are borrowing at 90 per cent loan to value ratio or higher, most lenders want to see at least 5 per cent of the purchase price in genuine savings unless you are using equity from another property.

Interest Only Versus Principal and Interest for Investors

An interest only loan lets you pay only the interest portion each month, keeping repayments lower and freeing up cash flow for other investments or costs. Principal and interest repayments are higher each month because you are paying down the loan balance as well as covering the interest.

Most investors choose interest only for the first few years to maximise claimable expenses and preserve cash flow, particularly if the property is negatively geared. All the interest you pay on an investment loan is deductible against rental income and other income from residential properties, so paying interest only does not reduce your deductions. Paying down principal does not generate a tax deduction, which is why many investors prefer to direct surplus cash into an offset account linked to their owner-occupied home loan, where paying down debt delivers no tax benefit, rather than paying down the investment loan.

Lenders typically offer interest only periods of one to five years on investment loans, after which the loan reverts to principal and interest unless you apply to extend the interest only term. Some lenders allow longer initial periods or multiple extensions, but policies tightened over recent years and fewer lenders now approve interest only terms beyond five years on high loan to value ratio lending.

How Rental Income Affects Your Borrowing Capacity

Lenders include rental income when calculating how much you can borrow, but they do not count the full amount. Most lenders apply a shading factor, typically using 80 per cent of the expected rent to account for vacancy periods, maintenance costs, and property management fees. If the property is expected to generate $500 per week in rent, the lender will assess your income as though you are receiving $400 per week from that property.

The shading reduces your assessed income, but it also reflects the reality that rental properties are not occupied every single week of the year. The calculation feeds into the overall serviceability assessment, which determines whether you can afford the repayments on both your existing debts and the new investment loan at the buffer rate. Borrowers with high existing debts or lower incomes may find that rental income alone does not add enough capacity to get the loan approved, particularly if the property is in an area with higher vacancy rates or lower rent relative to the purchase price.

Do You Need to Pay Stamp Duty Upfront?

Stamp duty on investment property purchases is payable at settlement in every state and territory, and the amount varies depending on the property price and location. You cannot roll stamp duty into the loan itself, though some buyers use equity or other funds to cover it alongside the deposit. In Tasmania, stamp duty on a property purchased at the state median typically adds several thousand dollars to your upfront costs, and that figure rises quickly as the purchase price increases.

Some states offer concessions or exemptions for certain buyers, but investment property purchases generally do not qualify for the same discounts available to first home buyers or owner-occupiers. Calculating the duty before you commit to a purchase is worth doing, because underestimating it can leave you short at settlement. If you are using equity to fund the deposit, make sure the amount you release covers both the deposit and the full stamp duty liability.

Negative Gearing and How It Affects Your Deposit Strategy

Negative gearing means your rental income is less than your loan repayments and other holding costs, creating a loss that you can offset against your other income to reduce your overall tax. For properties held before mid-May, losses remain fully deductible against salary, business income, and other sources. For established properties purchased after that date, losses can only be offset against income from other residential properties or carried forward, which changes the appeal of negatively geared investments for some buyers.

The tax treatment does not change the deposit requirement, but it does influence how much cash flow you need to sustain the investment. A negatively geared property might cost you $200 or $300 per week after rent and tax savings are accounted for, and that ongoing cost needs to fit within your budget on top of the upfront deposit and settlement costs. Buyers who stretch to meet the deposit sometimes underestimate the holding cost, particularly in the first year when the property may sit vacant for a period or require maintenance.

Call one of our team or book an appointment at a time that works for you. We will walk through your deposit options, calculate the real cost of LMI if you are borrowing above 80 per cent, and make sure your structure fits your broader investment plans. Whether you are using cash, equity, or a combination, getting the setup right at the start makes everything that follows easier.

Frequently Asked Questions