How you structure your investment lending can dramatically impact your cashflow, tax position and future borrowing capacity. Here’s what matters — and what to ask your broker.
Why structure matters as much as the rate
Most investors focus heavily on getting the best interest rate. While rate matters, the structure of your lending — how loans are set up, interest-only vs principal and interest, fixed vs variable — has an even greater long-term impact on your portfolio performance.
Interest-only vs principal and interest — what’s right for investors?
Interest-only (IO) lending is widely used by property investors because it maximises cashflow and preserves borrowing capacity. When interest is tax-deductible, keeping repayments lower on investment debt while accelerating repayment of your home loan is often the smarter financial move.
Note: Interest-only periods are typically limited to 5 years at a time. Your broker should have a clear plan for what happens when IO periods expire.
Key structuring principles every investor should know
- Keep investment and personal debt separate — mixing them creates tax complications
- Offset accounts on home loans, redraw on investment loans — preserves deductibility of investment debt
- Avoid cross-collateralisation — unless clearly beneficial, keep property securities separate
- Borrowing capacity planning — each purchase affects your ability to borrow next time
- Entity structure — personal name, company, trust or SMSF each have different implications
Questions to ask your mortgage broker
- How does this loan structure affect my future borrowing capacity?
- What happens when my interest-only period expires?
- Should this property be in my personal name, a trust or my SMSF?
- How does my existing debt affect serviceability for this purchase?
- Have you modelled the tax implications with an accountant?