Mortgage broker advice for property investors on how to protect and expand your property portfolio in today's environment
- Lenny Briffa
- May 21
- 7 min read
Updated: Jul 21
Strategic Moves for Property Owners in a Changing Landscape
Borrowers today are navigating a complex landscape. With multiple increases in interest rates and sweeping tax changes introduced in the recent May 12 Federal Budget, the goalposts for property ownership have moved.
However, a changing landscape doesn't mean your financial goals are out of reach. It simply means that passive property strategies should now evolve into active ones. This guide provides mortgage broker advice for property investors and summarises the current state of play and provides actionable, strategy-first thinking on how to minimise the impact of these changes, protect your grandfathered tax benefits, and position your portfolio for ongoing growth.
The Current State of Play
Property owners are currently dealing with a dual squeeze: higher borrowing costs and long-term changes to how property investment is taxed.
The May 12 Budget delivered the most significant proposed shakeup to property taxes in decades:
Negative Gearing: Moving forward, negative gearing will be restricted to newly built properties. If you purchase an established home after May 12, you will eventually lose the ability to offset rental losses against your wage income. (The Good News: Existing property portfolios, and any established properties purchased prior to May 12, are "grandfathered" and remain fully eligible under the old rules).
Capital Gains Tax (CGT): The 50% discount is being phased out. It will be replaced by an indexation model and a new 30% minimum tax from July 2027.
Discretionary Trusts: A new 30% minimum tax floor will apply to trust distributions starting in July 2028, changing how investment income may choose to be distributed.
Capital Gains Tax (CGT) - the tax you pay on the profit when you sell an asset
Primary Place of Residence (PPR) - the home you legally live in, as opposed to an investment property
Negative Gearing Grandfathering, Explained
"Negative gearing grandfathering" refers to the transitional rule protecting property investors who purchased established properties before the May 12, 2026 Budget cutoff. If you already own - or purchased before that date - an established investment property, you keep full access to negative gearing under the old rules indefinitely. Only established properties purchased after May 12, 2026 lose access to negative gearing going forward. New builds remain eligible regardless of purchase date.
How to minimise the Impact of Interest Rate Increases
The solution to managing interest rate increases may be a simple one.
Secure a Better Rate: The simplest way to combat rising rates is to ensure you aren't paying a "loyalty tax" to your current bank. This involves shopping around with multiple lenders to negotiate the most competitive rate available. Rather than do this yourself, let us do the heavy lifting for you. We specialise in finding great rates and great solutions at no cost for our clients to ensure they are not paying more in interest than they should be.
If rate negotiation alone doesn't generate sufficient savings, we can consider other structural levers:
Extend Your Loan Term: Refinancing to extend your loan term (e.g., pushing a 20-year remaining term back to 30 years) instantly lowers your mandatory monthly repayments.
Switch to Interest-Only (IO): Transitioning your loan to an interest-only structure removes the principal repayment component. While IO loans typically carry a slightly higher interest rate (usually around 0.2%), the immediate relief to your month-to-month cash flow can be substantial.
While reducing repayments may sound appealing, utilisation of this strategy should generally be considered a short term play, as this will increase the interest that you pay for the life of your loan. The end game is often (although not always) to repay your debt as quickly as possible without compromising your lifestyle. One scenario when it may not be ideal to repay your debt is explained below.
Interest-Only Home Loans in Sydney: How They Work
An interest-only home loan is exactly what it sounds like: for a set period (typically 1-5 years), your repayments cover only the interest charged on the loan, not the principal (the amount you originally borrowed).
For Sydney property investors, interest-only home loans are a popular short-term structural tool because they:
- Free up monthly cash flow immediately, since you're not paying down the loan balance
- Preserve a higher loan balance on a grandfathered investment property - which, combined with negative gearing, keeps your tax deductions higher for longer
- Typically cost a little more in interest overall (often around 0.2% higher than a standard principal and interest repayment loan), since you're not reducing the balance during the interest-only period
Interest-only vs principal and interest repayment loans
A standard home loan uses principal and interest (P&I) repayments - each payment covers both the interest owed and a portion of the loan balance itself, so the debt steadily shrinks. An interest-only loan pauses that second part temporarily.
This makes interest-only loans a genuinely useful short-term strategy for investment properties, but generally a less suitable long-term structure for an owner-occupied home loan, where the goal is usually to pay off the debt over time. Most lenders will only approve interest-only terms for a limited window before requiring the loan to revert to standard P&I repayments.
How to minimise the Impact of Tax Changes
If you own a property purchased before May 12, that asset is now incredibly valuable because it is legally grandfathered under the old negative gearing rules. Your strategic goal shifts from paying down this debt quickly to preserving the tax-deductible loan balance.
By reducing your mandatory repayments, you keep your grandfathered loan balance higher for longer - which means bigger tax deductions.
There's another lever worth considering: how you pay for repairs and renovations. Two options:
- Pay cash you already have on hand
- Borrow against the property instead
Borrowing for renovations on a grandfathered property can be a smart move. It legitimately increases your tax-deductible debt under the old rules, while potentially boosting the property's value and rental yield at the same time.
Preserve Grandfathered Benefits and reduce interest with an Offset Account
If you extend your term or switch to interest-only to lower your repayments, you must remain disciplined. Where possible, you should try to direct any savings achieved by reducing repayments into a 100% Offset Account.
By keeping your money in an offset account, you achieve the exact same interest savings as if you had paid down the loan. The critical difference? You retain complete, liquid access to your cash, and your grandfathered loan balance remains structurally intact.
Beware the "Redraw Trap"
Many borrowers confuse a redraw facility with an offset account. From a tax perspective, they are vastly different.
If you pay extra money directly into your loan to reduce the balance, and later pull it back out via a redraw facility for a personal expense (like a holiday or a new car), the ATO views that redraw as a brand new borrowing. Because the new borrowing is for a personal purpose, the interest charged on that redrawn amount is no longer tax-deductible. You have permanently diluted the grandfathered tax effectiveness of your original loan.
For this reason it pays to use an offset account to stockpile cash to ensure 100% of the loan's interest remains fully tax-deductible.
How to unlock future Tax-Free Growth and still potentially access Negative Gearing
The recent Budget changes don't eliminate the potential for tax-effective property growth; they just require a more strategic approach. For homeowners currently living in a family home purchased prior to May 12 2026, a powerful opportunity exists to upgrade while maintaining major tax benefits.
Because your current home is legally grandfathered (still eligible for negative gearing), you could choose to buy a new property to live in, and rent out your current home.
By executing this strategy:
Negative Gearing is Preserved: Once rented out, the interest on your existing mortgage becomes tax-deductible. Because the property was acquired before the Budget cutoff, it remains fully eligible for negative gearing against your wage income.
Tax-Free Growth: The new property you purchase becomes your Primary Place of Residence (PPR). Any future growth on this new home is entirely exempt from Capital Gains Tax.
The 6-Year Rule: Under the ATO's 6-year absence rule, if you eventually decide to sell your original (now rented-out) family home within six years of moving out, you can potentially sell that property completely tax-free as well.
Frequently Asked Questions
What is negative gearing grandfathering?
Negative gearing grandfathering protects investors who purchased an established property before the May 12, 2026 Budget cutoff, allowing them to keep offsetting rental losses against wage income under the old rules. Properties purchased after that date lose this benefit unless they are newly built.
Should I use an offset account or redraw on an investment loan?
For a grandfathered investment property, an offset account is generally the safer choice. It delivers the same interest savings as paying down the loan via redraw, but without risking the tax-deductible status of the loan balance if you later withdraw funds for a personal expense.
Is an interest-only home loan a good idea for Sydney investors right now?
It can be, as a short-to-medium-term strategy. Interest-only home loans free up cash flow and can help preserve a higher, tax-deductible loan balance on a grandfathered property. It's generally not recommended as a permanent structure, since you'll pay more interest over the life of the loan.
Can I still get mortgage broker advice for my property investment portfolio after the 2026 Budget changes?
Yes. The 2026 Budget changed the tax rules, not the fundamentals of good loan structuring. A mortgage broker can still help you negotiate a better rate, choose between interest-only and principal and interest repayments, and structure your loans to protect grandfathered tax benefits.
Summary - Mortgage broker advice for property investors
While the rules of the game are changing, the fundamental principles of wealth creation remain intact. By aggressively negotiating your rate, strategically preserving your grandfathered debt via offset accounts, and leveraging the assets you already hold, you can successfully navigate this squeeze and position your portfolio for long-term, tax-effective growth.
What do the changes mean for your investment property strategy?
Reach out for a conversation today to understand exactly how we can leverage this shifting market to help you grow your investment property portfolio.
Disclaimer: This article is for educational and informational purposes only and does not constitute personal financial, tax, or legal advice. Grandfathering provisions, the 6-year rule, and tax laws are complex and depend on individual circumstances. Always consult with a qualified accountant or tax professional before making changes to your property strategy.
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