Simple hacks to structure an investment loan for lawyers

Tax law changes taking effect from 1 July 2027 have altered the structure and timing decisions around purchasing rental property. The negative gearing quarantine introduced under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 now applies to established dwellings acquired on or after 7:30pm AEST on 12 May 2026, while eligible new builds retain access to unrestricted negative gearing and an election between the 50 per cent capital gains tax discount and indexation with a 30 per cent minimum rate. If you are considering an investment purchase, the distinction between established and new residential property now carries material financial consequences that extend beyond the deposit and purchase price.

How the negative gearing quarantine applies to investment property acquired now

Net rental losses from established residential dwellings purchased on or after 7:30pm AEST on 12 May 2026 can only be offset against residential rental income or carried forward to offset future residential rental income or capital gains from residential property sales. Losses cannot be offset against salary, business income, or other assessable income. Properties under contract before that date, or held at that time, continue under the previous rules. Eligible new builds, defined as dwellings constructed on previously vacant land or where the number of dwellings increases following demolition, remain exempt from the quarantine. A dwelling constructed as a new build that is occupied for more than 12 months before sale to a subsequent investor loses its new build status for the purchaser.

Consider a commercial lawyer purchasing an established apartment off-market in August this year. The property generates $32,000 in annual rent and incurs $38,000 in deductible costs, including interest, strata fees, insurance, and depreciation. Under the new rules, the $6,000 loss is quarantined and cannot reduce the lawyer's assessable income from employment. The loss is carried forward and can be applied against future rental profits from that property or other residential rental properties, or against capital gains when the property is eventually sold. If the same lawyer instead purchased an eligible new build townhouse in a site with three dwellings replacing a single dwelling, the $6,000 loss could be offset against salary in the year it is incurred.

Deposit and Lenders Mortgage Insurance considerations for lawyers

Most lenders will lend up to 90 per cent of the property value for investment purposes, requiring a 10 per cent deposit plus costs. Borrowing above 80 per cent loan to value ratio triggers Lenders Mortgage Insurance, which protects the lender and is typically capitalised into the loan amount. Lawyers have access to LMI waivers for lawyers that allow borrowing up to 90 per cent loan to value ratio without paying LMI, subject to lender criteria and income thresholds. Using existing equity in your principal place of residence or another property can eliminate the need for cash savings, though the same loan to value ratio limits apply across the total security position.

A litigation lawyer with a home valued at $1,200,000 and an outstanding loan of $600,000 has $480,000 in accessible equity at an 80 per cent loan to value ratio across both properties. That equity can fund the deposit and acquisition costs for an investment property without liquidating other investments or drawing on cash reserves. The lawyer maintains a single loan facility secured against both properties or splits the borrowing into separate loans against each security, depending on the intended use of funds and whether debt recycling for lawyers is part of the broader strategy.

Interest only or principal and interest repayments

Investment loans can be structured with interest only repayments for a defined period, usually one to five years, or with principal and interest repayments from the outset. Interest only reduces the monthly repayment and preserves cash flow, which is often prioritised when the rental income does not fully cover the holding costs or when the borrower is simultaneously reducing non-deductible debt on a principal place of residence. Principal and interest repayments reduce the loan balance over time and build equity in the investment property, which can then be used to fund subsequent purchases when expanding your property portfolio.

The choice between interest only and principal and interest should be made in the context of the investor's overall debt position and tax outcome. Interest on borrowings used to acquire or hold a rental property is deductible, while interest on a loan secured against an investment property but used for private purposes is not. Paying down non-deductible debt first, while maintaining interest only repayments on deductible investment debt, is a common approach. The interest only period does not extend indefinitely. Once it expires, the loan reverts to principal and interest repayments with a higher repayment amount calculated over the remaining loan term.

Serviceability buffer and debt-to-income settings under current APRA rules

Lenders assess investment loan applications using a serviceability buffer of 3 percentage points above the product rate and must include rental income net of a vacancy and expense factor, typically 20 to 30 per cent depending on the lender. As of 1 February 2026, APRA's debt-to-income cap restricts lenders from writing more than 20 per cent of new investor loans at a debt-to-income ratio of 6 times or greater. The cap is applied separately to the investor loan portfolio, meaning it does not directly affect owner-occupier lending, but it does constrain the amount some lawyers can borrow if total debt across investment and owner-occupied properties is high relative to gross income.

A lawyer earning $180,000 in gross income with $900,000 in existing owner-occupied debt and seeking to borrow $400,000 for an investment property would have a total debt-to-income ratio of 7.2 times. The lender can approve the loan only if it falls within the 20 per cent allocation for investor loans above 6 times debt-to-income. Some lenders prioritise that allocation for larger loans or stronger security positions, meaning the same application may be approved by one lender and declined by another purely on the basis of where the lender sits against its portfolio cap at the time of application. This is one reason why working with a broker who has visibility across investment loan options from multiple lenders becomes material when borrowing capacity is constrained.

Variable rate, fixed rate, or split loan structure

Investment loan products are available with variable rates, fixed rates for terms of one to five years, or a combination where part of the loan is fixed and part remains variable. Variable rates allow unlimited additional repayments and access to offset accounts or redraw facilities, depending on the product. Fixed rates lock in the repayment amount for the fixed period but typically restrict additional repayments to a capped annual amount and do not offer offset accounts. Breaking a fixed rate loan before the end of the fixed term can trigger break costs, calculated by reference to the difference between the contracted rate and the wholesale rate at which the lender can reinvest the funds for the remaining fixed period.

A split structure allows an investor to fix a portion of the loan, protecting against rate increases on that portion, while keeping the remainder variable for repayment flexibility. The variable portion can be linked to an offset account containing surplus cash or rental income, reducing the interest charged without making an additional repayment that reduces the deductible loan balance. Investors who expect to generate surplus cash or who may redirect funds between investment properties and other assets typically prefer to retain access to variable loan features rather than fixing the full amount.

Offset accounts and maximising deductible interest

An offset account is a transaction account linked to the loan where the balance is offset against the loan principal for the purpose of calculating interest, without reducing the loan balance itself. The loan balance remains unchanged, preserving the amount of deductible interest that can be claimed. Depositing rental income, personal savings, or other funds into an offset account reduces the interest cost on the loan while maintaining the flexibility to withdraw those funds at any time.

If a lawyer has a $500,000 investment loan and maintains $50,000 in an offset account, interest is calculated on $450,000, but the loan balance remains $500,000 and the full interest cost on $500,000 remains deductible to the extent the property is genuinely held to produce income. This is distinct from making a $50,000 repayment, which would reduce the loan balance to $450,000 and permanently reduce the amount of interest that can be claimed as a deduction in future years. Offset accounts are only available on variable rate loans, and not all investment loan products include them, so product selection becomes relevant if this feature is valued.

Refinancing an investment loan to access equity or lower rates

Property values increase over time, creating equity that can be accessed by refinancing the loan to a higher amount while maintaining the same loan to value ratio. Equity release allows investors to fund the deposit and costs for a second investment property without selling the first. The refinanced loan amount is higher, increasing the deductible interest, and the funds drawn must be used for income-producing purposes to maintain the deduction. Funds withdrawn and used for private purposes, such as renovating a principal place of residence or purchasing a car, do not generate deductible interest even though the loan is secured against the investment property.

Investment loan refinancing for lawyers may also be prompted by rate discounts available from other lenders or by changes in the investor's circumstances, such as moving from interest only to principal and interest repayments or consolidating multiple loans. Lenders periodically offer different rates to new customers than they apply to existing customers, and refinancing to a new lender can secure a lower rate or access to features not available on the current loan. The decision to refinance should account for discharge fees on the existing loan, application fees and valuation costs on the new loan, and any break costs if a fixed rate loan is being exited early.

Frequently Asked Questions