The match between property type and loan structure matters more than rate alone
The property type you're financing should directly inform which loan features you select. An established house on titled land operates differently from a property purchased off the plan, and your loan structure needs to reflect that. A variable rate with offset might suit an owner-occupied house where you're parking cash between closings, while a fixed interest rate home loan could make sense for an investment property where you're prioritising certainty over a set period.
When we work with lawyers purchasing established residential properties, the conversation usually centres on offset functionality and portability. When the same person is looking at off-the-plan apartments or land and construction, the focus shifts to progress draws, valuation risk, and whether a split loan structure makes sense during the build phase.
Established residential property with titled land
Established houses and units on titled land settle in a single transaction, which means you draw down the full loan amount at settlement and start making repayments immediately. For this reason, owner occupied home loans with a linked offset account tend to work well. You can park surplus income in the offset and reduce the interest charged without losing access to those funds.
Consider a lawyer who purchases an established house and uses a variable rate home loan with 100% offset. If they hold $40,000 in the offset account on a loan amount of $800,000, interest is only charged on $760,000. That reduces the monthly interest bill and shortens the effective loan term without requiring any change to the contracted repayment. The full $40,000 remains accessible if they need it for a property settlement trust account shortfall or an unexpected expense.
Portability also becomes relevant if you expect to upgrade or relocate within a few years. A portable loan allows you to transfer the existing loan to a new property without reapplying or paying discharge fees. That feature is more useful for owner-occupied property than for investment property, where you're more likely to retain the asset and simply add another loan.
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Off-the-plan apartments and valuation shortfalls
Off-the-plan purchases settle months or years after contract exchange, and valuations at settlement occasionally fall short of the contracted purchase price. Lenders base the loan amount on the lower of purchase price or valuation, so a shortfall means you need to cover the difference in cash or renegotiate.
A split rate loan structure can help here. You might fix a portion of the loan during construction to lock in certainty, then leave the remainder on a variable rate with offset to handle any additional cash you need to deploy at settlement. If the valuation comes in under the purchase price, you can use funds in the offset to cover the gap without needing to source a top-up loan on short notice.
In our experience, off-the-plan buyers also benefit from pre-approval that's structured to accommodate progress payments if the contract requires them. Most apartment contracts don't include progress payments, but some developers do structure them that way, particularly for larger projects. If your contract includes progress payments, make sure your loan product allows multiple drawdowns without reapplication.
Land and construction loans with progress draws
A construction loan is drawn down in stages as the build progresses, typically across five or six progress payments. You only pay interest on the amount drawn at each stage, so your repayments start low and increase as more funds are released. Most lenders allow interest-only repayments during construction, then convert to principal and interest once the build is complete.
The challenge with construction loans is that you're paying interest on the land from the date of settlement, even though the house isn't finished. If you're also paying rent elsewhere during the build, that creates a double cost. One way to manage this is to maintain an offset account against the land component and keep as much cash in there as possible until construction starts. Once the build is underway, you can draw those funds down to cover each progress payment and minimise the interest accruing on the loan.
Fixed interest rate home loans are less common during the construction phase because most lenders won't allow you to fix until the build is complete. If rate certainty is important, you can apply a split loan structure where the land component is variable during construction, then fix part or all of the loan once the final progress payment is made and the property is registered.
Investment property and interest-only structures
Investment property loans are usually structured with interest-only repayments for a set period, often five years. This reduces the monthly repayment and improves cash flow, which is useful if the rental income doesn't cover the full loan repayment. Interest on investment property loans is generally tax-deductible, so there's less incentive to pay down the principal quickly compared with owner-occupied debt.
The loan structure for investment property should also keep the debt separate from your owner-occupied borrowing. If you later want to convert the investment property to your primary residence, any interest you've paid while it was rented remains deductible up to that point, but new borrowings or redraws after the conversion are not. Keeping the loans separate from the outset makes the tax treatment clearer and avoids problems if you refinance or restructure later.
When you're purchasing your first investment property, a variable rate with offset usually offers more flexibility than a fixed rate. You can park rental income in the offset to reduce interest, and if you decide to sell within a few years, there are no break costs. If you're acquiring multiple investment properties over time, portability becomes less relevant because each property should have its own standalone loan to maintain clear tax separation.
Strata title and company title properties
Most apartments are strata title, which means you own the individual lot and a share of the common property. Lenders treat strata title the same as any other residential property, and the full range of home loan products and home loan features are available.
Company title is less common but still exists in some older apartment blocks, particularly in Sydney. With company title, you own shares in a company that owns the building, and those shares entitle you to occupy a specific unit. Lenders are more cautious with company title because it's not registered under the Torrens title system, and fewer buyers are willing to purchase it. Some lenders won't lend against company title at all, and those that do typically require a larger deposit and charge a higher interest rate.
If you're purchasing company title, confirm that your lender will accept it before you exchange contracts. You should also check whether the loan product includes an offset account, because some lenders restrict features on higher-risk property types. The same applies to properties with restrictions on the title, such as restrictive covenants or heritage overlays that limit renovation or demolition.
Refinancing to realign loan structure with property use
If you purchased a property years ago and your loan structure no longer suits how you're using it, refinancing can realign the two. A common scenario is a lawyer who bought an investment property with a standard principal and interest loan, then later realised that switching to interest-only and adding an offset would improve cash flow and tax efficiency.
Another example is someone who bought their primary residence with a fixed rate loan, then moved out and converted it to a rental. If that fixed rate is still in place, they're paying down non-deductible principal rather than keeping the debt level stable and deductible. Refinancing to interest-only after the fixed period ends keeps the loan balance constant and maximises the tax benefit.
Refinancing also makes sense if you've built up enough equity to access LMI waivers that weren't available when you first applied. Lawyers with a loan to value ratio above 80% often pay Lenders Mortgage Insurance, but once equity increases, refinancing to a lender that waives LMI for legal professionals can remove that cost from future borrowing.
Call one of our team or book an appointment at a time that works for you to discuss which loan structure suits the property type you're financing and how to structure it for both current use and future flexibility.
Frequently Asked Questions
Should I use a fixed or variable rate for an off-the-plan apartment?
A split loan with part fixed and part variable often works better for off-the-plan purchases. The variable portion with offset gives you flexibility to cover any valuation shortfall at settlement, while the fixed portion provides rate certainty during the construction period.
Why do construction loans use progress payments instead of a single drawdown?
Construction loans release funds in stages as the build progresses, so you only pay interest on the amount drawn at each stage. This reduces your interest cost during construction compared with borrowing the full amount upfront.
Can I use an offset account on an investment property loan?
Yes, but it may reduce your tax deduction. Interest saved by using an offset account is not charged, which means it's not deductible. If maximising deductions is your priority, consider paying interest in full and directing surplus cash elsewhere.
Do lenders treat strata title and company title properties the same way?
No. Strata title is treated as standard residential property, while company title is considered higher risk. Fewer lenders accept company title, and those that do usually require a larger deposit and may restrict loan features.
When should I refinance to change my loan structure?
Refinancing makes sense when your current loan structure no longer matches how you're using the property, such as converting an owner-occupied loan to interest-only after the property becomes a rental. It's also worth considering if you've built enough equity to access better terms or remove Lenders Mortgage Insurance.
