Many investment loan mistakes can be avoided with checks made before the contract is signed. If you live in Cardiff and you're thinking about buying a rental property, a few checks now can save you a lot of stress later.
At New Level Lending, we sit down with locals around Cardiff and the wider Newcastle region to talk through these decisions. Here are the mistakes worth steering clear of.
How Much Can You Borrow for an Investment Property?
Your investment loan amount is set by each lender's assessment of your income, debts and living costs, and it is often lower than people expect. Banks must test your ability to repay at a rate at least 3.0 percentage points above the loan's actual rate, so the repayment they assess is higher than the one you will pay.
Rental income helps, but lenders don't count all of it. APRA's guidance says a prudent lender counts no more than 80% of expected rent, to allow for gaps between tenants. Existing debts, including credit card limits, also reduce what you can borrow, even if the cards sit at zero.
The mistake is to treat the maximum as the target. Borrowing right to the limit leaves little room if rates rise or the property sits empty for a few weeks. If your total debt goes above 80% of the property's value, Lenders Mortgage Insurance is generally required. The premium is paid by you and adds to your upfront cost. Lenders also set their own limits above 80%, so policies differ.
Before you fall in love with a property, check your borrowing capacity and decide what repayment you'd be comfortable with in a tougher year.
Is an Interest-Only Investment Loan the Right Choice?
An interest-only loan lowers your repayments for a set period, but it does not reduce what you owe and it does not increase how much you can borrow. When the interest-only period ends, repayments usually rise because the principal must be repaid over a shorter remaining term.
Here is an illustrative example using a rate of 6.75% p.a. Consider an investor with a $500,000 loan over 30 years.
- Interest-only for the first five years: about $2,813 a month.
- Principal and interest over the full 30 years, for comparison: about $3,243 a month.
- Principal and interest after the five interest-only years, now over 25 years: about $3,455 a month.
Imagine an investor who chose interest-only to ease cash flow during a renovation. The balance would still be $500,000 at the end of year five, and the repayment would then jump by roughly $640 a month. If they planned for that step-up early, it would not come as a shock.
These figures are illustrative only, and your own rate depends on your lender and your deposit. Try your own numbers in our loan repayment calculator. Interest-only suits some investors with a clear plan, but the trade-off is a higher repayment later and a balance that hasn't moved.
Ready to chat to a qualified Finance & Mortgage Broker?
Book a chat with a at New Level Lending today.
What Changed With Negative Gearing for Investors?
Negative gearing rules now depend on when you buy and what you buy. Properties held at 7:30pm AEST on 12 May 2026, including those under contract at that time, keep full deductibility of rental losses against other income. Eligible new builds acquired after that date also keep it.
From the 2027-28 income year, net rental losses on established residential properties bought after that time can only be deducted against other residential property income, such as rent or residential capital gains. Excess losses can be carried forward. Properties bought between 12 May 2026 and 30 June 2027 can be negatively geared under the current rules until 30 June 2027 only.
The mistake is to build a plan that relies on your salary absorbing the loss. If you're buying an established home, check what the numbers look like if the loss can't be used against your wages. Interest on an investment loan remains deductible, but only the interest part of a repayment is, not the principal. Capital gains tax rules also change from 1 July 2027, with the 50% discount replaced by indexation for gains accruing after that date. Please speak with your accountant about how this applies to you, as outcomes depend on your circumstances.
Why Mixing Personal and Investment Borrowing Causes Tax Problems
Interest is deductible based on what the borrowed money is used for, not on which property secures the loan. If you redraw from an investment loan to pay for a holiday or a car, the interest on that part is generally not deductible.
The ATO's ruling on redraw and line of credit facilities treats each redraw as a separate borrowing. A mixed-purpose loan then gets messy at tax time, because you must work out how much of the interest relates to income-producing use. A cleaner approach is to keep personal borrowing on separate loans from the start. The trade-off is that you may carry more than one loan, and each can come with its own fees and features.
If you're releasing equity from your home to fund a deposit, the same logic applies. The interest on the funds used for the investment purchase is what matters, so it helps to structure the split before you draw anything. Ask your accountant to confirm the treatment.
Is Your Current Loan Holding Back Your Next Purchase?
An existing loan with a higher rate, or one tied up with several properties, can limit your next move. A review can show whether refinancing would free up equity or lower your repayments, though discharge fees, valuation costs and other charges can apply, so we compare these against the likely saving.
A loan health check is a sensible first step if you've held your loan for a few years. It shows where your debts sit and what a lender would see when you apply for another loan. Because we can access investment loan options from banks and lenders across Australia, we can compare what suits your plan instead of relying on one lender's view.
People in Cardiff come to us at every stage, from a first rental to adding another. If you'd like a straight conversation about your numbers, call one of our team or book an appointment at a time that works for you. We'll walk through your options, explain the costs and risks plainly, and help you decide your next step with confidence.
Frequently Asked Questions
Does an interest-only investment loan let me borrow more?
No. Lenders are expected to assess interest-only loans on principal and interest repayments over the remaining term, so borrowing capacity is not increased. Repayments usually rise when the interest-only period ends.
Do lenders count all of the rent from an investment property?
No. APRA's guidance says prudent lenders count no more than 80% of expected rent. Each lender sets its own policy on what rental evidence it accepts.
Is interest on an investment loan tax deductible?
Interest on money borrowed to buy or hold a rental property is generally deductible, but only the interest part of a repayment, not the principal. Talk to your accountant about your situation.
When is Lenders Mortgage Insurance usually needed on an investment loan?
LMI is generally required when your loan goes above 80% of the property's value. The premium is paid by the borrower, and each lender sets its own limits above that level.
