Simple hacks to boost your investment property deposit

You do not need to save a second deposit from scratch.

Most primary teachers who call us about buying an investment property assume they need 20 per cent cash in the bank before they can proceed. That misconception keeps plenty of portfolios on hold for years. If you already own a home and have been paying down the loan or benefiting from property price growth, you likely have options that do not require starting over with a savings plan.

Using equity from your home without selling it

You can borrow against the value locked in your current home to fund the deposit on an investment property. Lenders refer to this as equity release, and it works by refinancing your existing home loan to access a portion of the property's value while keeping the property itself. The refinanced amount covers your new investment deposit, and you repay it as part of your overall home loan.

Consider a primary teacher who bought in a suburb that has appreciated over the past few years. The home is now worth more than the outstanding loan, and the difference between the two is usable equity. Instead of saving another $80,000 over several years, that teacher refinances the home loan to release enough for the investment deposit and associated costs. The investment property is then purchased using that equity, and the rent helps cover part of the repayments on both loans. You can read more about how equity release works and what lenders typically allow.

Lenders Mortgage Insurance when you borrow above 80 per cent

If you do not have 20 per cent equity available or prefer not to use all of it, you can still proceed with a smaller deposit by paying Lenders Mortgage Insurance. LMI is a one-off premium that protects the lender if you borrow more than 80 per cent of the property's value. It adds to your upfront costs, but it allows you to buy sooner rather than waiting to build a larger deposit.

Some lenders offer LMI waivers or discounts for teachers, which can reduce or remove this cost entirely when purchasing an investment property. Not every lender extends these offers to investment loans, so it pays to check which products are available before you commit. We regularly see teachers surprised to find they qualify for a waiver on an investment loan when they assumed it was only available for owner-occupied purchases. More detail on LMI waivers for teachers is available if you want to compare lenders.

Loan to value ratio limits and how they affect your borrowing

Lenders cap how much you can borrow against an investment property based on the loan to value ratio. Most will lend up to 90 per cent of the property's value if you pay LMI, though some cap investment loans at 80 or 85 per cent regardless of insurance. The LVR you can access depends on your income, existing debts, and the lender's current appetite for investment lending.

If you are using equity from your home to fund the deposit, the lender calculates LVR across both properties. Your home might be refinanced to 85 per cent LVR to release the deposit, and the investment property might be purchased at 80 per cent LVR. The combined position matters because lenders assess your ability to service both loans together, not in isolation. Running the numbers with a broker before you start looking at properties removes the guesswork and tells you exactly what you can borrow. You can also review general guidance on borrowing capacity if you want to understand the calculation.

Savings versus genuine savings and what lenders actually require

Lenders distinguish between money you have saved over time and money that appeared in your account recently. Genuine savings means funds held for at least three months in your name, usually in a bank account or offset account. A tax refund, a gift from family, or a bonus paid last month does not count as genuine savings for most lenders, even if the amount is substantial.

If you are using equity to fund the deposit, genuine savings becomes less relevant because the deposit is not cash. But if you are contributing any cash component or covering settlement costs from your own funds, lenders will ask for proof that the money has been held long enough to qualify. In our experience, teachers often have funds sitting in an offset account for months or years without realising that balance already meets the genuine savings requirement. The key is making sure your statements clearly show the balance over the required period without large unexplained deposits.

Covering stamp duty and other upfront costs without breaking the budget

Stamp duty, conveyancing, building and pest inspections, and loan establishment fees add up quickly. In most states, stamp duty on an investment property is calculated at the standard rate without the concessions available to first home buyers, so you need to budget for the full amount. Depending on where you buy, that can mean several thousand dollars on top of the deposit itself.

You can sometimes capitalise these costs into the loan if you are borrowing below the lender's maximum LVR, but that approach increases your loan amount and your ongoing repayments. The alternative is to pay them from savings or offset funds at settlement. If your equity release or cash deposit leaves you short, it is worth reviewing whether you have enough buffer before you sign a contract. We regularly see buyers who have planned the deposit perfectly but underestimated settlement costs by $5,000 or more, which creates unnecessary pressure in the final weeks before settlement.

Interest only repayments and whether they suit your strategy

An interest only loan lets you pay just the interest portion each month without reducing the principal. This keeps your repayments lower during the interest only period, which can help with cash flow if you are managing two loans or if the rental income does not cover the full repayment amount. The trade-off is that the loan balance stays the same, and you will need to start paying principal and interest once the interest only period ends, usually after five years.

Many property investors choose interest only to maximise their tax deductions, because the interest is deductible while principal repayments are not. If your goal is to build a portfolio and you plan to use surplus cash flow to pay down your home loan or save for the next deposit, interest only can make sense. If you prefer to reduce debt and build equity in the investment property itself, principal and interest repayments might suit you fine. You can read more about interest only loans and when they align with different investment strategies.

How rental income affects your borrowing capacity

Lenders include rental income when calculating how much you can borrow, but they do not count the full amount. Most lenders apply a shading factor of around 80 per cent to account for periods when the property might be vacant or require maintenance. If the property is expected to rent for $500 per week, the lender will typically assess your income as though you are receiving $400 per week.

That shading can make a noticeable difference to your borrowing capacity, particularly if you are already carrying a home loan and other commitments. If your salary and the shaded rental income are not enough to service both loans under the lender's assessment, you may need to adjust your budget, increase your deposit, or look at a lower-priced property. Running a serviceability calculation early in the process means you know your limits before you start attending inspections. More context on investment loans for teachers is available if you want to explore how lenders assess these applications.

Refinancing an existing investment loan to access better rates or release equity

If you already own an investment property and the loan rate no longer reflects what is available in the market, refinancing can reduce your repayments and improve cash flow. Lenders adjust their rates regularly, and a loan taken out a few years ago might now be sitting well above current pricing. Refinancing also gives you the option to release equity if the property has increased in value, which can then be used as a deposit for a second investment property.

The refinancing process for an investment loan is similar to refinancing your home loan, but lenders will reassess your income, debts, and the rental income from the property. If your circumstances have changed since you first borrowed, such as a pay rise or paying off other debts, you might find you can borrow more than you could originally. If your situation has tightened, refinancing might still save you money through a lower rate without increasing the loan amount. You can find more detail on investment loan refinancing if you are reviewing your current loan.

Call one of our team or book an appointment at a time that works for you. We will run the numbers on your current position, confirm what deposit options you have, and line up lenders that suit your situation without you needing to approach each one individually.

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