A pre-approval gives you a clear borrowing limit before you commit to an investment property. At CFC Finance, we believe that clarity is the strongest foundation for a confident decision, so we want you to understand what that limit is built on. That matters whether you are looking at a unit near the Parramatta CBD or a house elsewhere in Western Sydney.
What Does an Investment Loan Pre-Approval Actually Tell You?
A pre-approval is a lender's conditional indication of how much it may lend you for an investment property. It is not a final approval, because the lender still assesses the specific property and its valuation before it commits.
That makes it a planning tool. It lets you set a realistic price range, move quickly when the right property appears, and avoid falling in love with something the numbers will not support. A strong investment loan application at this stage includes your income, existing debts, living costs and the deposit you plan to use. Our investment loans page explains how we approach this with each client.
How Do Lenders Work Out Your Investor Borrowing Limit?
Banks must test whether you could still afford repayments if rates rose by at least 3.0 percentage points above the loan's actual rate. APRA, the banking regulator, requires this for all banks, credit unions and building societies when they assess new borrowers. Non-bank lenders are not bound by that particular rule, although each lender also applies its own credit policy.
Rental income helps, but lenders do not count all of it. APRA's guidance says prudent lenders count no more than 80 per cent of expected rent, to allow for periods when the property is vacant. Lenders also treat a rental appraisal for a property you have not yet bought with more caution than actual rent received.
Existing debts reduce your limit too. Lenders look at your current loans, their balances and terms, and credit card limits, even if you never spend on the card. You can get a first look at your numbers on our borrowing capacity page.
A separate rule limits how much of each bank's new lending can be at six times a borrower's income or more. It applies to the bank's overall portfolio and not to you personally, so your application is still judged on its own merits under that lender's policy.
Interest Only or Principal and Interest: What Changes at Pre-Approval?
Choosing interest only repayments does not increase your borrowing limit. Banks are expected to assess the loan as if you were repaying principal and interest over the remaining term after the interest only period ends.
As an illustrative example, consider an investor seeking a $600,000 loan at 6.75% p.a. over 30 years, with a five-year interest only period. In the first five years, the repayments would be about $3,375 a month. A 30-year principal and interest loan at the same rate would be about $3,892 a month, so interest only looks cheaper at first.
After the interest only period, repayments on the remaining 25 years would be about $4,145 a month at 6.75% p.a., if the rate stays the same. The lender assesses the loan on principal and interest over those 25 years at a higher buffered rate (6.75% plus at least 3 percentage points, or 9.75%), which is about $5,347 a month. Once the interest only period ends, the balance would still be $600,000. In a scenario like this, the investor may decide the lower early cashflow is worth it, or may choose principal and interest to start reducing the debt straight away. Either way, they know the real numbers before they make an offer.
The trade-off is plain. Interest only improves cashflow for a period, but you pay down none of the debt, and repayments rise later. You can test your own figures with our calculators when calculating investment loan repayments.
Negative Gearing Rules Now Depend on When You Buy
The date you acquire an investment property now affects how any rental loss can be used. Losses from residential investment properties held at 7:30pm AEST on 12 May 2026 can continue to be deducted against other income, including salary and wages.
For established residential properties bought after that time, net rental losses from the 2027-28 income year can only be deducted against other residential property income, including capital gains on residential property. Eligible new builds can still deduct losses against all income. Properties bought between 12 May 2026 and 30 June 2027 may be negatively geared under the current rules until 30 June 2027 only.
Only the interest portion of a loan repayment is deductible, and only to the extent the property is rented or genuinely available for rent. The principal portion is not. Interest on money you borrow for private purposes is not deductible. These are general statements and not tax advice, so please speak with your accountant about how they apply to you.
What Do LVR and LMI Mean for Your Investor Deposit?
Loan to value ratio (LVR) is your loan divided by the property's value, and 80 per cent is the point above which Lenders Mortgage Insurance (LMI) is generally required. That 80 per cent line is not a legal borrowing limit. It is where lenders typically ask for insurance, and each lender sets its own rules above it.
LMI protects the lender and not you, and the borrower pays the premium. The cost depends on the loan amount and LVR, so a larger investor deposit can reduce or avoid it. Borrowing above 80 per cent also needs both the lender and the insurer to approve, and each lender sets its own LVR limits.
If you already own a home, equity can also form part of your deposit. If you draw on that equity for private spending, the interest on that portion is not deductible, because deductibility follows how the money is used. Keep investment and private borrowing separate where you can, and ask your accountant how to structure it. If you already have loans, a refinance may also be worth considering before you apply for a pre-approval.
A sound property investment strategy starts with numbers you understand. Call one of our team or book an appointment at a time that works for you, and we will help you set a borrowing limit with purpose.
Frequently Asked Questions
Is an investment loan pre-approval the same as final approval?
No. A pre-approval is a lender's conditional indication of how much it may lend you. The lender still assesses the specific property and its valuation before final approval.
Does choosing interest only increase my borrowing limit?
No. Lenders are expected to assess an interest only loan on principal and interest repayments over the remaining term after the interest only period. That means it does not increase your limit.
How much rental income do lenders count?
APRA's guidance says prudent lenders count no more than 80 per cent of expected rent, to allow for vacancy. Each lender also sets its own policy on what rental evidence it accepts.
Is the interest on my investment loan tax deductible?
Interest is generally deductible to the extent the property is rented or genuinely available for rent. The principal part of a repayment is not deductible, so speak with your accountant about your situation.
