When buying an investment property, securing the right loan structure is just as important as finding the right property. As a mortgage broker working closely with property investors, the team at OM Financials sees many cases where sub-optimal loan setups cost investors time, money, and flexibility. Below are the most common mistakes and how to avoid them.
1. Treating investment loans like standard home loans
One of the first errors is assuming an investment property loan can be handled just like an owner-occupier home loan. Many investors fall into this trap. But investor loans often come with higher interest rates, different serviceability rules, and less flexibility. Not recognising the difference means paying more than necessary and being locked into a structure that doesn’t support an investment strategy.
2. Ignoring the mix of principal & interest vs interest-only repayments
Another major error that borrowers make is accidentally opting for the wrong type of repayment without thinking strategically. Interest-only (IO) loans can free up cash in the short term and maximise tax-deductible interest, but the loan balance itself doesn’t go down.
On the other hand, principal and interest (P&I) loans help build equity faster but reduce short-term cash flow. The right choice depends on your goals, whether you’re focused on maximising cash flow or growing long-term equity.
3. Setting the wrong loan term and ignoring future flexibility
The loan term counts. If a borrower chooses a long-term (e.g., 30 years) just because it results in lower monthly payments, he or she may end up paying more interest over the life of the loan and also build less equity. Similarly, not building in flexibility, such as the option to refinance, increase payments or switch loan product, can also trap a borrower in a rigid structure. Smart products have terms and structures consistent with the investment horizons and exit strategies.
4. Overlooking offset accounts, redraw facilities and extra repayment options
Many investors miss out on the opportunities on offer in loan products, which give flexibility and control. such as a redraw facility, which lets you make extra payments and then withdraw the additional funds when you want. An offset account reduces the interest by offsetting the savings against the loan amount. Without these features, a loan is simply a series of fixed payments, which may limit the flexibility to restructure or react to shifting market conditions.
5. Not considering the tax and depreciation implications
Investors often focus on interest rates and repayments but skip the strategic view of tax and depreciation. For example, interest on an investment loan is tax-deductible in many cases — but only if the structure supports it (i.e., interest-only, correct property use). Depreciation schedules and other deductions matter. If the loan is structured incorrectly, tax benefits may be reduced. A good loan structure supports the investment’s broader tax strategy.
6. Ignoring multiple properties and the loan consolidation strategy
For serial investors building a portfolio, a common mistake is treating each loan in isolation rather than as part of an overall strategy. Multiple loans may result in mixed terms, uneven interest rates, separate fees, and inefficient structure. Consolidating where appropriate, or ensuring each loan is structured for the specific property (growth vs cash flow), leads to better control. Without planning, the investor may pay more in interest and lose the benefits of a coordinated strategy.
7. Focusing only on the interest rate, not the overall loan package cost
Many investors chase the lowest interest rate. While this is important, it is not the only cost. Fees, redraw/offset availability, variable vs. fixed splits, the lender’s flexibility, and life of loan cost — all matter. Paying a slightly higher rate for a loan with better flexibility and features may be the smarter long-term move. Investors who focus only on the headline rate often regret it later.
8. Neglecting the exit strategy and refinancing timing
It is important to understand the way a loan is being structured. It is actually relevant to the entry point in the investment, but also the exit point or refinancing. Failing to build in the option of refinancing if markets change, or failing to factor in sale timing, can leave an investor stuck with a bad loan. A structure that enables refinancing, bridging, or adapting as required views the potentiality. Omission of an exit strategy is also a widely prevalent error.
9. Working without expert advice and failing to review periodically
Finally, one of the biggest mistakes is proceeding without specialist advice and not reviewing the loan structure over time. The investment property and lending landscapes change — interest rates may rise, tax laws may change, and your portfolio may grow. Without periodic review by a broker or adviser, you may be stuck with a loan that worked five years ago but no longer does. As a buyer’s agent partner to lending professionals, OM Financials recommends regular loan health checks and strategic reviews.
Build a smarter loan strategy – talk to OM Financials today
Structuring an investment loan is not only about getting a loan approved; it’s about aligning that loan with your investment objectives, cash-flow needs, tax strategy, and future plans. Investors often err by applying a “one-size-fits-all” home-loan mindset, chasing the lowest rate, or ignoring flexibility and review. A thoughtful approach ensures the loan supports your property strategy today and into the future.
If you would like tailored advice on how to structure your investment loan, contact OM Financials and ensure your strategy is set up for success. Also, you can also book a free consultation to talk about the strategy and receive full guidance.