How much deposit do you need for an investment property?

“How much deposit do I need?” has two answers, and giving only one is how people end up short at settlement.

The first is the deposit that gets the loan approved. The second is the deposit that avoids lenders mortgage insurance. They are usually different numbers, and neither of them is the total amount of cash you need to have.

Here is how each one is worked out, plus the two things that have changed recently and are not yet in most of what you will read.

Where LMI starts

Lenders mortgage insurance is the clearest line in the whole exercise, because it is the one figure that is published rather than being somebody’s credit policy.

ASIC’s Moneysmart puts it plainly: LMI is “payable when the amount borrowed exceeds 80% of the value of the property”. So a 20 per cent deposit is the point at which it normally stops applying.

Two things about LMI are routinely misunderstood.

It protects the lender, not you. Moneysmart is unambiguous: LMI “protects a credit provider if borrowers are unable to repay their loan”, and it “does not benefit the borrower, it only protects the lender”. If the property is sold at a loss, the insurer pays the lender and can then pursue the borrower for the shortfall. Paying the premium buys you access to the loan, not protection from it.

It is usually a one-off cost, in Moneysmart’s words — but on most loans it is capitalised, meaning it is added to the loan and you pay interest on it for as long as the loan runs. A premium that looked like a manageable one-off becomes a rather less manageable number over thirty years.

Whether LMI is worth paying is a real question with a real answer either way. Waiting two years to save the extra deposit costs you two years of whatever the property does in that time, and it is not obvious in advance which way that trade goes. What it should never be is a surprise.

The cash you need is more than the deposit

The deposit is the visible number. It is not the number that has to be in the account.

None of that is covered by the loan. It is the reason a 20 per cent deposit and 20 per cent of the purchase price in the bank are not the same thing.

Using equity instead of cash

If you already own property, the deposit does not have to be cash. Equity — the difference between what a property is worth and what is owed on it — can be released and used as the deposit on the next one.

The mechanics are ordinary: the existing property is revalued, the loan against it is increased, and the released funds become the deposit and costs for the purchase. In practice it is usually structured as a separate split or facility rather than one blended loan, and the reason for that is tax, not tidiness — see the redraw section below.

Three things to be clear-eyed about:

• It increases the debt secured against the property you already own. Equity release is borrowing, not a windfall.
• The usable equity is not the full equity, because the lender still applies its own maximum against the existing property.
• It does not help with serviceability. Equity answers the deposit question. It does nothing about whether you can service the total debt, which is the constraint that actually binds most investors.

Genuine savings, and why lenders care

Where a loan involves LMI, lenders typically want to see part of the deposit as “genuine savings” — funds accumulated over time rather than appearing at once.

This is lending policy rather than a published rule, so the details vary. The pattern is consistent: savings held for a period, or rent paid on a verifiable arrangement, will usually satisfy it, while a recent gift or a lump sum from an unexplained source usually will not on its own.

The logic is not moral. Regular saving is evidence of a capacity to meet a regular commitment, which is exactly what the lender is being asked to rely on. Where a deposit is genuinely a gift, it is normally still workable — with a letter confirming it is not repayable, and, often, more of the deposit than the minimum.

Why the deposit is usually not what stops you

For most investors, the binding constraint is not the deposit. It is serviceability, and two published settings shape it.

APRA confirmed in May 2026 that “the mortgage serviceability buffer will remain at 3 percentage points”. That means a lender assesses your ability to repay at a rate meaningfully above the one you would actually pay — a stress test, applied to the new loan and generally to existing debts as well.

In the same announcement, APRA confirmed that high debt-to-income lending limits remain unchanged, “allowing banks to lend up to 20 per cent of new owner-occupied and investment loans at DTI greater than or equal to six times”. That is a limit on the share of a bank’s book, not a cap on any individual borrower — but its practical effect is that lending at high income multiples is rationed, and the borrowers who get it are the strongest ones.

Add rental income being shaded rather than counted in full, existing credit card limits being assessed at their limit rather than their balance, and a household expenses floor applied regardless of how frugally you actually live, and the picture is usually this: people who think they are short on deposit are more often short on assessed capacity. Which is worth finding out before you start bidding.

The redraw trap, in one paragraph

This one costs real money and is almost always discovered after the fact.

Interest on money borrowed to buy a rental property is generally deductible while the property is rented or held to produce assessable income. The ATO is equally clear about the other side: you cannot claim interest “on the portion of the loan used for private purposes”, either when you took out the loan or when you refinance it.

The trap is redraw. Making extra repayments into an investment loan and later redrawing them for something private — a car, a holiday, a renovation on your own home — is treated as a new borrowing for that private purpose. The loan is now mixed, the interest has to be apportioned between the deductible and non-deductible parts, and that apportionment continues for the life of the loan. The ATO’s ruling TR 2000/2 deals with exactly this: interest on money drawn under line of credit and redraw facilities where the borrowing has been applied for both income-producing and non-income-producing purposes.

An offset account does not have this problem, because money in an offset is your money reducing the interest calculation, not a repayment being redrawn. That is the entire reason offset accounts are the default recommendation on investment loans, and it is worth more than a small rate difference between two products.

What changed in the 2026 Budget

This is the part missing from most of what has been written about investment property deposits, because most of it was written earlier.

On 12 May 2026, as part of the 2026–27 Federal Budget, the government announced a reform of negative gearing and capital gains tax. The ATO’s guidance states plainly: “These measures are now law.”

From 1 July 2027, the changes will:

• limit negative gearing for residential property investments to new builds; and
• replace the 50 per cent CGT discount for individuals, trusts and partnerships with cost base indexation and a 30 per cent minimum tax rate on capital gains.

The transitional position matters as much as the change. The ATO says the impact on existing investments will be limited: properties held at the time of the announcement — 7:30pm AEST on 12 May 2026 — are exempt from the negative gearing changes, and the CGT reforms apply only to gains that accrue after 1 July 2027.

What that means for someone deciding on a deposit in late 2026 is not a lending change at all. It is that the after-tax case for an established residential investment bought now is not the one modelled in a spreadsheet built before May 2026, and the difference between an established property and a new build has become a tax question as well as a valuation one.

We are describing published rules here, not advising on them. Anyone weighing a purchase on the tax outcome should be doing that with a registered tax agent, on their own numbers, and reading the ATO’s own page rather than a summary of it.

Working out your own number

In this order:

1. Find out what you can service first. It is the constraint that usually binds, and it sets the purchase price. Everything else is a percentage of a number you have not established yet.
2. Decide whether you are paying LMI. Above 80 per cent of the property’s value it applies. Get the premium quoted for the actual scenario rather than estimated, because it moves sharply with the loan-to-value ratio.
3. Add the costs that are not the deposit. Stamp duty is the big one for an investor, and investors generally get none of the first-home concessions.
4. Decide between cash and equity, and if it is equity, structure it as a separate split from the start.
5. Set the loan up with an offset, not redraw, and do not mix purposes in one facility.
6. Take the tax question to your accountant, with the 1 July 2027 changes on the table.

If you want the serviceability number before you start looking, that is the first thing we work out — see how we approach home and investment loans, or book a call and we will run it properly.