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Can you change your home loan to an investment loan?

Can you change your home loan to an investment loan?

There are a few different scenarios where you might choose to turn your owner-occupied home into an investment property, including: 

  • Moving back in with parents or other family while you rent out your former home
  • Moving into a rental property elsewhere (“rentvesting”) while you rent out your former home
  • Buying a new home to live in while you rent out your former home
  • Moving interstate or overseas for work while you rent out your former home

Mortgage lenders offer different types of home loans to owner occupiers and to property investors. After all, buying a home to live in is a different type of transaction to buying an investment property, and comes with a different type of risk for the lender.

So, what steps would you need to take to turn your owner occupied home loan into an investment loan?

Check the fine print and inform your lender

Read through the loan documents, terms and conditions from when you first signed up for your mortgage to see if there are any limitations or restrictions on how you can use your property. You may find that if you applied for an owner-occupier home loan, you may be required to inform the lender and seek their consent if you intend to vacate and/or lease your property.

Because of the different risk involved with an investment property compared to an owner-occupied property, your lender may require you to pay a higher interest rate and/or fees, or provide additional security to turn your owner occupied loan into an investment loan.

If combing through the fine print and legalese is giving you a headache, or if you’re not sure of the best option for your situation, a mortgage broker may be able to help work out your next move.

Consider the tax implications

From the taxman’s perspective, renting out a property as an investment is a different kettle of fish to living in a home as an owner occupier. While an owner-occupier may be exempt from many taxes on their principal place of residence (PPOR), a property investor may have a range of extra tax considerations to think about.

For example, depending on the income received from the property compared to the cost of its maintenance, your property could be positively or negatively geared. This could affect your total taxable income for the financial year. Consider contacting a tax professional, mortgage broker, real estate agent and/or property manager to work out the best strategy for looking after your former home as an investment property.

There’s also Capital Gains Tax (CGT) to consider if you choose to sell your property. While CGT typically doesn’t apply when you sell your PPOR, you may need to consider it if your sell an investment property. You may want to keep the “six year rule” in mind, where you can treat the dwelling as your main residence for up to six years if it is used to produce income, before having to consider CGT if you choose to sell.

Remember that tax rules are complex and can change from year to year. Consider contacting the ATO and/or a tax accountant before making any decisions that could affect your taxes.

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This article was reviewed by Personal Finance Editor Alex Ritchie before it was published as part of RateCity's Fact Check process.

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