Common Mistakes That Slow Investment Loan Approval

Many investment loan applications slow down when they do not match how a lender assesses them. A lender looks at your income, your debts and the rent the property could earn, then tests whether you could still afford the loan if rates rose.

If you own a home in Maroubra and are weighing up your first rental property, this article covers the mistakes that cause the most delays. It also covers how to avoid them.

How Do Lenders Decide an Investment Loan Application?

Banks and other authorised deposit-taking institutions must test whether you can afford the loan at a rate at least 3.0 percentage points above the loan's actual rate. This buffer applies to new borrowers, and APRA confirmed it at that level in its 28 May 2026 update.

In practice, you can be comfortable with the repayments today and still fall short in the lender's test. The fix is to check your borrowing capacity before you start looking at properties. That way you search within a range the lender is likely to accept.

Mistake One: Counting All the Rent as Income

Lenders do not count all of the expected rent. APRA's guidance says prudent lenders count no more than 80 per cent of expected rent, to allow for times when the property is empty.

Rent figures from an agent's appraisal also tend to carry less weight than actual rent received. Lenders usually rely more on real rental receipts than on estimates.

Lender policies on rental evidence and how rent is treated differ, so it pays to ask before you buy.

Mistake Two: Forgetting About Your Existing Debts

Existing debts reduce what you can borrow, and that includes credit cards you barely use. For cards, lenders can apply a notional repayment based on the card limit, not the balance.

Consider a Maroubra owner-occupier who wants to buy a rental and has two credit cards with high limits and a car loan. The application comes back with a lower loan amount than expected. The broker suggests closing one card and cutting the other limit before lodging. The lender reassesses the application with lower notional commitments, and the borrower can then proceed at a loan amount that fits the plan. The trade-off is less spare credit available for emergencies, so it suits people who rarely rely on it.

Does an Interest-Only Loan Help You Borrow More?

No. An interest-only loan does not lift your borrowing power. For these loans, APRA expects lenders to test repayments as principal and interest over the shorter remaining term, once the interest-only period ends.

For example, a 30-year loan with a 5-year interest-only period is assessed on repayments over the remaining 25 years. That can mean a lower maximum loan than a standard principal and interest loan.

Interest-only repayments are lower in the early years, which helps cash flow. The trade-off is that you are not reducing the balance, so you owe the same amount when the period ends. You can read more about the structure on our interest only loan page.

Mistake Three: Choosing a Structure Before You Check the Tax Rules

Interest on a loan used to buy a rental property is generally deductible, but only the interest part of a repayment. The principal part is not deductible. Only the interest part of a repayment is deductible under either structure. Interest-only usually means more interest is charged because the balance is not reduced. A larger interest bill is a higher cost, not a tax benefit, because you only deduct interest you have actually paid. Ask your accountant how the structure affects your deductions.

Negative gearing rules have also changed. For established residential properties bought after 7:30pm AEST on 12 May 2026, net rental losses will only be deductible against other residential property income from the 2027-28 income year. Properties held at that time keep the current treatment, and eligible new builds can still use losses against all income.

These changes affect how a rental loss can be used, so speak to your accountant before choosing a loan structure.

What Does a Repayment Look Like on an Investment Loan?

A repayment depends on the loan amount, rate and term. At an illustrative rate of 6.75% p.a., a $500,000 loan over 30 years on principal and interest costs about $3,243 a month. Interest only at the same rate costs about $2,813 a month.

If that interest-only loan has a 5-year interest-only period, the later principal and interest repayment is calculated over 25 years. At the same illustrative rate, that comes to about $3,455 a month. Use our mortgage repayment calculator to test your own numbers.

A rate this high is for illustration only. Your actual rate will depend on your lender and your deposit.

Mistake Four: Overlooking Your Deposit and Lender Mortgage Insurance

Lenders mortgage insurance is generally required when your loan is more than 80 per cent of the property's value. The 80 per cent figure is a lender threshold, not a legal limit on borrowing, and each lender sets its own caps above it.

The premium is paid by you and rises with the loan size and loan-to-value ratio. If you can reach 80 per cent, you may avoid it, but that may mean waiting or using equity in your current home. Using equity adds debt to your own home, so that risk needs weighing up. Our no LMI loans page explains the options.

Why Work With a Broker Before You Lodge

A broker can compare how different lenders treat rent, debts and structure before an application goes in. That matters because lenders set their own policies in these areas, and a decline can leave a mark on your credit file.

If you already have loans, a refinancing review can show whether restructuring first would strengthen your position. Our Maroubra mortgage broker page has more on how we work with local investors.

Call one of our team or book an appointment at a time that works for you, and we will talk through your plans before you apply. You can also reach us through our contact page.

Frequently Asked Questions