Cross-collateralisation, loan splits, interest-only vs P&I — how you structure your investment loans matters more than most people realise.

Why Structure Matters

When you buy an investment property, how you set up the loans is just as important as the property you choose. Get the structure wrong and you could end up paying more tax than necessary, or worse — get on the wrong side of the ATO.

Avoid Cross-Collateralisation

Cross-collateralisation is where the bank takes both your home and your investment property as security for all your loans. 100% of the time, this benefits the bank more than you. It gives them more control and makes it harder to sell or refinance one property independently.

Instead, keep loans separated by purpose and secured against their respective properties.

Split According to Purpose

If you're using equity in your home for the deposit on an investment, create a separate loan split for that amount. You'll end up with:

Loan 1: Original home loan (not tax deductible)
Loan 2: Deposit loan for investment (tax deductible, secured by your home)
Loan 3: Main investment loan (tax deductible, secured by investment property)

This clean separation keeps your accountant happy and ensures you can claim the maximum interest deduction.

Interest Only vs Principal and Interest

Most accountants recommend interest-only repayments on investment loans. Why? Because only the interest is tax deductible (not the principal). Paying P&I on an investment loan means you're reducing the good debt while still carrying bad debt on your home.

By switching to interest-only on the investment loans, you free up cash to throw at your home loan instead. On a $730,000 investment debt, the difference between IO and P&I can be over $500 per month — money that could shave 10+ years off your home loan.

Route the Cash Flow Through Your Offset

Direct rental income into a second offset account attached to your home loan. While it sits there, it reduces the interest on your bad debt. When investment expenses come due, they come out of this dedicated account — making end-of-year bookkeeping straightforward.