Simple hacks to fund a holiday home with Defence pay

Lenders treat a holiday home the same way they treat an investment property

A holiday home loan is assessed as an investment loan, even if you never rent it out. Lenders apply the same serviceability buffer, the same LVR limits, and the same risk weighting regardless of whether the property generates income. That means you'll need a deposit of at least 20% to avoid LMI, and your borrowing capacity will be reduced compared to an owner-occupied purchase.

Consider a buyer who already owns their primary residence and wants to purchase a coastal property for weekend use. Even if that property remains vacant year-round, the lender treats the loan as investment lending and applies a serviceability assessment that assumes rental income at 80% of market rent, or no rental income at all if the buyer states they won't lease it. The interest rate applied is typically 0.1% to 0.3% higher than an owner-occupied variable rate, and the loan must pass serviceability at that rate plus a 3.0 percentage point buffer under APRA requirements.

Can I use the 5% Deposit Scheme for a holiday home?

No. The Australian Government 5% Deposit Scheme is only available for owner-occupied purchases where you intend to live in the property as your principal place of residence. A holiday home does not meet that definition, even if you spend significant time there. The scheme cannot be used for investment properties or second homes.

For ADF members, no LMI loans may still be available through selected lenders for investment purchases, including holiday homes, depending on your deposit size and borrowing profile. Some lenders waive LMI for ADF members at LVRs up to 90% or 95% on investment lending, though policy varies by institution and is subject to credit approval.

Interest-only versus principal-and-interest repayments for a second property

Interest-only loans are commonly used for investment properties because they reduce the monthly repayment obligation and preserve cash flow. For a holiday home, an interest-only period can make sense if you're managing repayments on two properties simultaneously or if you're deployed and want to minimise outgoings while overseas.

Under APS 112, a loan with an interest-only period greater than five years and an LVR above 80% is classified as non-standard, which attracts higher capital requirements for the lender and may result in a higher interest rate or stricter approval criteria. Most lenders offer interest-only terms of one to five years on investment loans, after which the loan reverts to principal-and-interest unless you reapply for an extension.

If you're considering a split loan structure, you can fix part of the loan to lock in repayments during a posting and leave the remainder on a variable rate with an offset account. That gives you rate certainty on one portion while retaining flexibility on the other.

Serviceability gets tighter when you're carrying two mortgages

Lenders assess your ability to service both your existing home loan and the new holiday home loan at the same time. That includes applying the 3.0 percentage point buffer to both loans and factoring in all other financial commitments, including personal loans, car loans, and credit card limits.

From 1 February 2026, APRA's DTI limits cap the proportion of new loans that ADIs can write to borrowers with a total debt-to-income ratio of six times or greater at 20% of new owner-occupier lending and 20% of new investor lending. If your combined debt sits above that threshold, you may still be approved, but the lender's capacity to lend in that segment is constrained and approval may take longer or require additional justification.

In our experience, ADF members with stable income and existing equity in their primary residence can usually support a second property loan provided their total monthly commitments remain within serviceability limits. Running a borrowing capacity calculation before you start looking at properties will give you a clear picture of what you can afford.

Using equity from your primary residence to fund the deposit

If you've built equity in your primary residence, you can access that equity to fund the deposit on a holiday home without selling any assets. Lenders allow you to borrow against the equity in your existing property by refinancing or establishing a separate loan secured against the first property.

This is common among ADF members who have owned their primary residence for several years and have benefited from capital growth or paid down the principal. The combined LVR across both properties must remain within the lender's policy limits, typically 80% to 90% depending on whether LMI is paid or waived.

Equity release loans are structured so that you access the funds at settlement of the second property rather than upfront, which means you're not paying interest on the borrowed deposit any earlier than necessary.

Offset accounts reduce the interest cost when you're not using the property

A linked offset account allows you to park cash against the loan balance and reduce the interest charged each month without making extra repayments. If you're saving for a future renovation, holding funds between deployments, or simply not using the holiday property for part of the year, an offset account keeps that cash accessible while cutting your interest cost.

Some lenders restrict offset accounts on fixed rate loans or charge a higher interest rate for loans with full offset functionality. On a variable rate loan, offset accounts are standard and typically included at no additional cost.

What happens if you decide to rent the holiday home later?

If you purchase the property as a holiday home and later decide to lease it out, you'll need to notify your lender. The loan is already classified as investment lending, so there's no change to the loan structure or rate, but the lender will want to know the property is tenanted for insurance and security purposes.

Rental income can improve your serviceability position if you're applying for further credit down the track. Lenders typically assess rental income at 80% of the market rent and include that in your total income when calculating borrowing capacity. Negative gearing rules apply from the 2027-28 income year for established properties purchased after 12 May 2026, meaning losses can only be offset against other residential property income rather than salary. Properties held before that date, or new builds purchased after that date, are grandfathered and continue to allow full deductibility of losses against all income.

Call one of our team or book an appointment at a time that works for you

If you're an ADF member considering a holiday home purchase, we can help you structure the loan to suit your posting cycle, work through the deposit options, and confirm your borrowing capacity before you make an offer. Call one of our team or book an appointment at a time that works for you.

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