Investment loan optimisation is the process of structuring your borrowing to match your property strategy, tax position, and portfolio goals.
For Brunswick East investors, that process now includes managing substantial legislative changes introduced in the 2026-27 federal budget. Properties acquired after 12 May 2026 are subject to new negative gearing restrictions from the 2027-28 income year, and capital gains accruing from 1 July 2027 are taxed under a different framework. These changes affect how you structure a loan, when you acquire, and how you hold.
How Negative Gearing Rules Changed in May 2026
Negative gearing for established residential properties acquired after 7:30pm AEST on 12 May 2026 is now limited. From the 2027-28 income year, losses from these properties can only be offset against other residential property income, including capital gains. Excess losses carry forward. Properties held before that date, or under contract at that time, are grandfathered and remain fully deductible against all income, including wages. New builds remain exempt and can continue to be negatively geared against all income.
Consider an investor who purchased a two-bedroom apartment in Brunswick East in early 2024. Interest on that loan remains deductible against their salary indefinitely. If the same investor now acquires a second established property, losses from that second property can only offset income from the first property, or be carried forward until disposal. The legislative change does not affect how the loan is written or which lender is used, but it does change the after-tax cost of holding the asset.
Capital Gains Tax From July 2027
From 1 July 2027, the 50 per cent CGT discount on residential investment properties is replaced by cost base indexation and a 30 per cent minimum tax rate on real gains accruing after that date. Gains accruing before 1 July 2027 remain subject to the existing 50 per cent discount. For properties owned before and sold after 1 July 2027, gains are split into pre-transition and post-transition portions. Investors may obtain a market valuation as at 1 July 2027 or apply an ATO apportionment formula.
Eligible new builds retain access to both the old and new CGT treatment, and the investor can choose which applies at the time of sale.
How Loan Structure Affects Tax Position
The way you draw down an investment loan determines which expenses are deductible. Interest is deductible to the extent the borrowing is used to acquire or hold an income-producing asset. If you redraw funds from an investment loan to pay for private expenses, that portion of the interest becomes non-deductible.
A separate loan account for each property, with no redraw facility or linked offset, protects the deductibility of interest. Where an offset account is used, balances in the offset do not reduce the loan amount for capital adequacy purposes under APRA Prudential Standard APS 112, but they do reduce the interest charged and therefore the amount you can claim.
Interest Only or Principal and Interest for Investment Loans
Interest-only repayments maximise the deductible interest component and preserve cash flow for reinvestment or additional acquisitions. Principal and interest repayments reduce the outstanding loan balance and build equity, which can be used to fund future purchases, but they also reduce the deductible interest over time.
Under APS 112, a loan is classified as non-standard where the LVR exceeds 80 per cent and the interest-only period exceeds five years or is not specified. Non-standard classification increases the risk weighting applied by the lender and may affect pricing or approval.
In our experience, Brunswick East investors with multiple properties often select interest-only terms for newer acquisitions to maintain liquidity, and switch to principal and interest on older holdings where the rental yield covers the higher repayment.
Debt-to-Income Limits and Borrowing Capacity
APRA activated a debt-to-income lending limit on 1 February 2026. Each authorised deposit-taking institution may lend up to 20 per cent of new investor loans to borrowers with a total DTI ratio of six times or greater. The limit applies separately to investor and owner-occupier portfolios and is measured quarterly. Bridging loans and purchases of new dwellings are excluded.
The DTI limit operates in addition to the existing 3.0 percentage point serviceability buffer, which requires lenders to assess capacity at a rate 3.0 percentage points above the loan product rate. These settings reduce borrowing capacity for investors with high income relative to existing debt, particularly where rental income does not fully cover holding costs.
Fixed or Variable Rate for Investment Property
Variable rates allow for offset accounts, which reduce interest without reducing the deductible loan balance. Fixed rates provide certainty over repayment costs but generally do not allow offsets or additional repayments beyond a capped amount. A split structure, with part of the loan fixed and part variable, combines both features.
Rate selection depends on your tax position, cash flow requirements, and view on rate direction. Where rental income is volatile or vacancy rates are elevated, a fixed portion provides a floor on repayment costs. Where surplus cash is held in offset, a variable portion maximises the benefit of that offset balance.
Loan to Value Ratio and Lenders Mortgage Insurance
Lenders mortgage insurance is generally required where the LVR exceeds 80 per cent. The premium is calculated on a sliding scale based on loan amount and LVR and is paid by the borrower, either upfront or capitalised into the loan. Stamp duty on the LMI premium may apply depending on the state or territory.
Under APS 112, LMI reduces the capital requirement for the lender, which can improve pricing or approval likelihood for higher LVR loans. However, the premium cost often outweighs the rate benefit, particularly where the investor can structure the purchase to remain at or below 80 per cent LVR by using equity from an existing property.
Using Equity to Fund Your Next Purchase
Equity is the difference between the property value and the outstanding loan balance. Lenders will typically allow you to borrow up to 80 per cent of the property value without LMI, or up to 90 per cent with LMI, depending on the lender's policy and your serviceability.
Releasing equity involves either refinancing the existing loan to a higher amount or establishing a new loan secured against the existing property. The new borrowing can then be used as a deposit and to cover acquisition costs for the next property. The interest on the new borrowing is deductible where the funds are used to acquire an income-producing asset.
For Brunswick East investors, equity release is a common method to fund portfolio growth without liquidating an existing holding. The area's proximity to the CBD, established cafes along Lygon Street, and access to tram routes along Nicholson Street support stable capital growth, which builds equity over time.
How Portfolio Structure Affects Refinance Options
Portfolio investors with multiple properties across different lenders retain flexibility to refinance individual holdings without affecting the rest of the portfolio. Consolidating all properties with a single lender may reduce rate and simplify administration, but it also limits your ability to move one loan without triggering a review of the entire portfolio.
Where a lender applies a portfolio cap, additional lending may be declined even where serviceability and security are sufficient. Spreading holdings across lenders reduces this concentration risk.
When Refinancing an Investment Loan Makes Sense
Refinancing an investment loan is appropriate where the rate has drifted above market, where loan features no longer match your strategy, or where you are releasing equity for further acquisition. Refinancing costs include application fees, valuation fees, and potential discharge fees from the existing lender. These costs are generally deductible where the refinance is for investment purposes.
An investment loan refinance that releases equity and reduces the rate by 0.50 per cent or more will typically recover costs within 12 to 18 months, depending on loan size.
Call one of our team or book an appointment at a time that works for you. Andor Financial works with property investors across Brunswick East to structure lending that aligns with your portfolio strategy, tax position, and the legislative environment that now applies to residential investment property.
Frequently Asked Questions
Can I still negatively gear an investment property acquired after May 2026?
Yes, but only against other residential property income from the 2027-28 income year. Losses can no longer be offset against wages or other non-property income unless the property is an eligible new build. Excess losses carry forward to future years.
How does the new capital gains tax rule work from July 2027?
From 1 July 2027, the 50 per cent CGT discount is replaced by cost base indexation and a 30 per cent minimum tax rate on real gains accruing after that date. Gains accruing before 1 July 2027 remain subject to the existing discount. Properties owned before and sold after are split into pre-transition and post-transition portions.
Should I choose interest-only or principal and interest for an investment loan?
Interest-only repayments maximise deductible interest and preserve cash flow, which suits investors focused on portfolio growth. Principal and interest repayments reduce the loan balance and build equity, but also reduce the deductible interest over time. The right choice depends on your tax position and reinvestment strategy.
What is the debt-to-income limit and how does it affect borrowing capacity?
APRA's DTI limit restricts lenders to 20 per cent of new investor loans for borrowers with total debt six times income or greater. The limit applies from February 2026 and reduces borrowing capacity for high-income investors with substantial existing debt, particularly where rental income does not cover holding costs.
Can I use equity from my Brunswick East property to buy another investment property?
Yes, lenders typically allow borrowing up to 80 per cent of the property value without LMI, or up to 90 per cent with LMI. The released equity can be used as a deposit for the next purchase, and the interest on the new borrowing is deductible where funds are used to acquire an income-producing asset.
