Avoid These 5 Investment Loan Comparison Mistakes

Comparing Rate Discounts Without Checking the Base Rate

The advertised rate discount means nothing if the base rate is inflated. Some lenders offer large discounts off artificially high comparison rates, while others apply smaller discounts to genuinely lower base rates.

Consider a member posted to Robertson Barracks in Darwin who compares two lenders. Lender A offers a 1.20% discount off a 6.80% variable base rate, landing at 5.60%. Lender B offers a 0.80% discount off a 5.90% base rate, landing at 5.10%. Lender A looks more generous on paper, but Lender B delivers a lower actual rate and saves around $200 per month on a $500,000 loan. The discount figure is a marketing tool, not a pricing guarantee.

When comparing investment loans for ADF members, ask for the actual interest rate you will pay, not the discount percentage. The dollar cost of the repayment is what matters.

Ignoring How Loan to Value Ratio Affects Investor Pricing

Lenders apply different risk weights to investor loans at different LVRs under APRA's prudential framework. A loan at 85% LVR costs more in capital for the lender than one at 75% LVR, and that cost is passed to you through higher rates or steeper LMI premiums.

An investor with a 15% deposit may face an interest rate 0.30% to 0.50% higher than an investor with a 25% deposit, plus LMI. Over the life of a $450,000 loan, that rate difference alone adds tens of thousands in interest. If you have access to additional savings or can access equity from your current home, dropping your LVR below 80% removes LMI entirely and often unlocks lower investor rates. Some ADF members qualify for LMI waivers at higher LVRs, which changes the calculation entirely.

Choosing Interest Only Based on Lower Repayments Alone

Interest only repayments are lower than principal and interest, but that does not make them cheaper. You are deferring the principal, not avoiding it. When the interest only period ends, your repayment jumps unless you refinance or extend the arrangement.

In a scenario where a member borrows $400,000 on a five-year interest only term at current variable rates, the monthly repayment might sit around $1,650. When the loan reverts to principal and interest with 25 years remaining, the repayment could jump to over $2,300. If rental income does not cover that gap, the shortfall comes from your salary. Interest only suits investors with strong cash flow, a clear exit plan, or those maximising deductions in high-income years. It does not suit everyone, and it should not be chosen purely because the monthly figure looks smaller.

If you are buying your first investment, compare both structures across the full loan term, factoring in what happens after year five. Some lenders allow you to make principal repayments during an interest only period without penalty, which offers flexibility if your circumstances change.

Overlooking Offset and Redraw Restrictions on Investment Loans

Some lenders restrict offset accounts or redraw on investor loans, particularly at higher LVRs or on interest only products. If you plan to park surplus cash in an offset to reduce interest while keeping funds accessible, confirm the lender offers a full offset on the product you are comparing.

We regularly see members assume all loans come with offset access, then discover their chosen lender either does not offer it on investor products or charges a higher rate to include it. Redraw facilities may also be restricted or subject to minimum withdrawal amounts on some investor loans. If you need access to extra repayments for future deposits or debt recycling strategies, check the terms before you sign.

Forgetting That Negative Gearing Rules Changed in May 2026

If you acquire an established investment property after 12 May 2026, losses from that property can only be offset against income from residential property investments, not your salary, from the 2027-28 income year onward. Properties held before that date, properties under contract before that date, and eligible new builds remain fully deductible.

A member comparing an established townhouse with a new apartment needs to model the difference. If the established property produces a $12,000 annual loss and you have no other residential property income, that loss is quarantined and carried forward under the new rules. The new build allows you to offset that loss against your salary immediately, reducing your taxable income and increasing your after-tax cash flow. That difference affects serviceability, borrowing capacity, and long-term return.

When comparing loan structures, factor in how the tax treatment affects your actual repayment capacity. Your broker should be working with updated serviceability buffers and DTI limits that apply from February 2026, and your accountant should model the post-tax position for each scenario. Do not rely on pre-2026 assumptions about negative gearing when running your numbers.

Fixed Versus Variable for Investment Loans

Fixed rates lock in certainty but remove flexibility. Most fixed rate investment loans do not allow offset accounts, limit extra repayments to around $10,000 per year, and charge break fees if you exit early or refinance.

Variable rates move with the market, but they allow unlimited extra repayments, full offset access, and penalty-free refinancing. If you plan to refinance your investment loan within three years, pay down principal quickly, or use offset to manage tax, variable is usually the better fit. If you want repayment certainty and do not plan to make changes, a fixed term can work, particularly if you lock in a rate during a low point in the cycle.

Some investors split their loan, fixing a portion for stability and keeping the rest variable for flexibility. Splitting adds complexity, but it also reduces the risk of locking in the wrong rate or losing access to features you later need. Compare the actual product features, not just the rate, and choose the structure that matches how you intend to manage the loan.

Call one of our team or book an appointment at a time that works for you. We will run the numbers on the loan structures that suit your circumstances and the property type you are buying, and make sure you are comparing what actually matters.

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