Do you know duplexes and investment loan features?

A duplex purchase is treated as a single residential investment property for lending purposes, regardless of whether you occupy one side or rent both out.

That means the loan structure, deposit requirements, and interest rate will depend on how the lender classifies the primary use of the property at the time you apply. If you intend to live in one unit and rent the other, the loan is structured as owner-occupied with rental income declared. If you plan to rent both sides, the loan is classified as an investor loan from the outset. The distinction matters because lenders apply a 3.0 percentage point serviceability buffer and rental income discounting to investor loans, and they generally price investor interest rates higher than owner-occupied rates.

What lenders treat as rental income on a duplex loan

Lenders will include rental income from a tenanted side of the duplex in your serviceability calculation, but they discount it to account for vacancy and management costs. Most lenders apply a 20 per cent discount, so if one side of the duplex generates $600 per week, the lender will assess $480 per week as usable income. If you're occupying one side and renting the other under an owner-occupied loan, that rental income is added to your salary when the lender calculates your borrowing capacity. If you're renting both sides under an investment loan, both income streams are discounted and added together. Lenders do not accept projected rental income unless a signed lease is in place at settlement or a rental appraisal has been provided by a licensed property manager.

Consider a registered nurse earning $95,000 per annum who plans to occupy one side of a duplex and rent the other for $550 per week. The lender discounts the rental income to $440 per week, or roughly $22,880 per year, and adds that to the nurse's salary for a total assessed income of approximately $117,880. That additional income improves serviceability, but it also means the loan is classified as owner-occupied, not investment, which affects the interest rate and the availability of certain home loan features like offset accounts and redraw.

When both sides are rented: investor loan classification

If both sides of the duplex are tenanted from settlement, the loan is classified as an investment loan. The investor interest rate generally sits 0.30 to 0.60 percentage points higher than the equivalent owner-occupied rate, depending on the lender and whether you choose a variable or fixed rate. Investment loan products usually include features such as interest-only repayment options, offset accounts, and the ability to claim interest and holding costs as tax deductions under the current negative gearing framework. Interest-only periods typically run for one to five years, after which the loan reverts to principal and interest unless you request an extension.

Under the legislation that took effect from the 2027-28 income year, losses on established residential investment properties acquired after 7:30pm AEST on 12 May 2026 can only be offset against other residential property income, not against salary. Properties held at that date, including those under contract awaiting settlement, retain full negative gearing treatment. Eligible new builds remain fully negatively geared regardless of purchase date. A duplex constructed on previously vacant land, or a replacement dwelling where the number of dwellings increased, is generally considered an eligible new build. A duplex created by subdividing an existing house into two units without increasing the total dwelling count is not.

Deposit and LMI on duplex investment loans

Most lenders require a 20 per cent deposit for an investment property loan, which means you'll need at least 80 per cent LVR to avoid Lenders Mortgage Insurance. If your deposit is less than 20 per cent, LMI applies and the premium is calculated on the loan amount and LVR. The premium is typically added to the loan balance and capitalised over the life of the loan. Some lenders extend LMI waivers to registered nurses and midwives on owner-occupied loans, but these waivers generally do not apply to investment loans. Westpac, St.George, and Bank of Melbourne offer LMI waivers to nurses and midwives at up to 90 per cent LVR on owner-occupied purchases, subject to a minimum income of $90,000. Those waivers do not extend to investment loans.

If you're considering purchasing a duplex as your first investment property, you'll need genuine savings or equity from an existing property to cover the deposit, plus stamp duty and settlement costs. Stamp duty on investment property is calculated on the full purchase price and cannot be added to the loan in most cases. Body corporate fees, if applicable, are treated as an ongoing expense in the serviceability assessment.

Debt-to-income limits and duplex borrowing

From 1 February 2026, lenders are restricted to lending no more than 20 per cent of new investor loans to borrowers with a total debt-to-income ratio of six times or greater. If your total borrowings, including the new duplex loan and any existing home loan or personal debt, exceed six times your gross annual income, you fall into that 20 per cent allocation. Lenders manage this restriction by either declining the application or requiring a larger deposit to bring the loan amount down. The DTI limit applies separately to investor and owner-occupier lending, so if you already have an owner-occupied home loan and you're applying for an investor loan to purchase a duplex, both loans are counted in your total debt when calculating the ratio.

In a scenario where a midwife earning $98,000 per annum has an existing home loan balance of $420,000 and applies for a $450,000 investment loan to purchase a duplex, the total debt is $870,000. The DTI ratio is approximately 8.9 times income, which places the application in the high-DTI category. The lender may approve the loan if it falls within their 20 per cent allocation, but if that allocation is exhausted for the quarter, the application will be declined or deferred until the next quarter. This is a binding quarterly limit set by APRA and applies to all authorised deposit-taking institutions.

Interest-only investment loans and repayment structure

Interest-only repayments reduce the monthly loan cost during the interest-only period, which can improve cash flow if the rental income does not cover the full principal and interest repayment. The interest-only period is typically one to five years, and during that time you pay only the interest component each month. At the end of the period, the loan reverts to principal and interest and the repayment amount increases. Some lenders allow you to request an extension of the interest-only period, subject to a serviceability reassessment.

Interest paid on an investment loan is deductible against rental income under current tax rules, and if the property is negatively geared, the loss can be offset against other income, subject to the legislative changes outlined earlier. Principal repayments are not deductible. If you make additional repayments during an interest-only period, those repayments reduce the loan balance but do not reduce the interest charged in future months unless you restructure the loan. Some interest-only loan products include a redraw facility that allows you to access additional repayments, but redrawing from an investment loan can affect the deductibility of interest if the redrawn funds are used for private purposes.

Refinancing an existing duplex investment loan

If you already own a duplex on an investment loan and your fixed rate is expiring or your current variable rate is higher than the market, refinancing may reduce your repayments or release equity for further investment. Lenders reassess your income, expenses, and the property's current value when you refinance. If the property has increased in value since you purchased it, your LVR may have improved, which can give you access to lower interest rates or allow you to release equity without triggering LMI.

Refinancing an investment loan involves the same serviceability assessment as a new loan application, including the 3.0 percentage point buffer and rental income discounting. If your circumstances have changed since you took out the original loan, such as a reduction in hours or an increase in other debts, you may not qualify for the same loan amount with a new lender. Working with a mortgage broker who understands how lenders assess rental income and occupancy classification can help you identify which lenders are most likely to approve your refinance application and offer the rate you're after.

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