An investment property is a home that you don’t plan to live in, but hope to make a financial return from. Like investing in shares, property investors enter the market hoping their investment will grow in value and deliver yield.

Property is often considered a longer term investment than shares, allowing you to build your wealth over time. This is partly due to higher entry and exit costs, which is where an investment loan can be useful.

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2.29%

Fixed - 3 years

2.65%

UBank

$1.3k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

2.51

/ 5
More details

2.74%

Variable

2.74%

UBank

$1.4k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

2.85

/ 5
More details

2.74%

Fixed - 5 years

2.76%

UBank

$1.4k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

2.46

/ 5
More details

2.54%

Variable

2.54%

Athena Home Loans

$1.4k

Redraw facility
Offset Account
Borrow up to 60%
Extra Repayments
Interest Only
Owner Occupied

3.13

/ 5
More details

2.64%

Variable

2.59%

Athena Home Loans

$1.4k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

2.90

/ 5
More details

2.84%

Variable

2.66%

Athena Home Loans

$710

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

2.06

/ 5
More details

3.02%

Variable

3.05%

Yard

$1.4k

Redraw facility
Offset Account
Borrow up to 90%
Extra Repayments
Interest Only
Owner Occupied

2.10

/ 5
More details

2.79%

Fixed - 3 years

4.46%

CUA

$698

Redraw facility
Offset Account
Borrow up to 90%
Extra Repayments
Interest Only
Owner Occupied

1.71

/ 5
More details

3.15%

Variable

3.16%

Commonwealth Bank of Australia

$1.4k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

2.37

/ 5
More details

2.55%

Fixed - 1 year

3.21%

Adelaide Bank

$638

Redraw facility
Offset Account
Borrow up to 79.9999%
Extra Repayments
Interest Only
Owner Occupied

2.48

/ 5
More details

3.29%

Variable

3.71%

NAB

$823

Redraw facility
Offset Account
Borrow up to 90%
Extra Repayments
Interest Only
Owner Occupied

1.46

/ 5
More details

Learn more about home loans

What is the difference between an investment loan and an owner-occupier loan?

When you apply for a mortgage as an owner-occupier, your lender knows you will live in the property and use your personal income to manage your mortgage repayments. But if you’re an investor, tenants will live in the property and provide you with rental income. If you make improvements to the property, and/or property values in the area increase, you may also be able to benefit from capital growth on the property.

Investment home loans often offer flexible features and benefits, allowing investors to manage their payments to try and maximise their investment income. However, because investing in property is often more financially risky than simply owning your own home, investment home loans often have higher interest rates and fees than owner-occupier home loans.

Two-tier market: Why lenders charge investors higher rates

In 2014, the Australian Prudential Regulatory Authority (APRA) raised concerns about the growth of the investment housing market and the risk that this debt could destabilise Australia’s housing market and wider economy. Many lenders responded by changing the eligibility criteria for investor borrowers and by increasing investor rates. While APRA has since relaxed many of the regulations on investment lending, many lenders still charge higher rates to property investors, who they see as riskier customers to lend to than owner-occupiers.

Investors are seen as riskier borrowers because buying a property as an investment is different to buying a home to live in. There are no guarantees when investing; if you can’t find tenants for your property, or if it doesn’t increase in value, you could find yourself in financial trouble, leaving you unable to afford your loan. Plus, while an owner-occupier is less likely to risk losing the roof over their head, an investor may be more willing to risk their investment to try and maximise their returns.

How do I apply for an investment home loan?

Just like an owner-occupier, if you’re applying for a mortgage as an investor you’ll need to provide details of:

  • The value of the property you want to buy
  • How much you want to borrow
  • Your credit history (especially your history of making regular repayments on any other outstanding loans)
  • Your income and employment status

The lender will use this information to work out if you can comfortably afford the loan. The lender will only consider your current household income when making its calculations, even if you plan to supplement this with rental yields from the property. This is to help reduce the risk that you’ll default on your repayments if the property is unoccupied for some reason, such as during fallow months when you’re changing over tenants.

The lender will also consider the potential for your property to rise in value over time, as well as vacancy rates in your area and any trends in property prices.

TIP:

Keep in mind that there might be hefty expenses involved in preparing the property for occupation, which can eat into rental income. Make sure that your calculations are as accurate as possible so that you and the lender can be confident you can afford the loan.

Other types of investment loans

As well as standard mortgage loans, there are other loans available that may be useful to investors.  

You may be able to use your investment property to secure a line of credit. This works similarly to a credit card, where you can borrow and repay money as you need it, up to a pre-set limit, and only pay interest on what you’ve borrowed.  

If you have a self-managed super fund (SMSF), you may be able to buy an investment property to support the fund with its yield. This may require a special SMSF home loan with a higher interest rate. There are also a range of regulations to consider when investing in property with an SMSF, as any investments must benefit the fund, and not individual members. Contact the ATO and/or an SMSF specialist for more information.

Fixed vs variable rates: what is the difference?

Investment property buyers can choose between fixed or variable interest rates.

  • A fixed interest rate allows you to lock in a set repayment amount for a set period of time – usually between 1 and 5 years.
  • A variable interest rate can be changed by the lender to better suit the current economy, meaning your mortgage repayments could increase or decrease.

So which is the best option? It depends on your circumstances and preferences.

  • A fixed interest rate can keep your repayments stable for simpler budgeting, though you may miss out on interest savings if the lender lowers its variable rates, such as if the RBA cuts the cash rate.
  • A variable rate home loan could save you money if rates fall, though your minimum repayments could end up increasing if rates rise. Also, variable rate loans more often offer flexible home loan features, which could help you better manage your repayments and potentially save money on interest charges.

Interest-only investment home loans

Some lenders offer mortgages where you only need to pay the interest charges on the loan for a limited time, without reducing the principal amount you owe. This can help make your mortgage payments more affordable, which can make a big difference to your budget. However, because it also means your loan will take longer to pay off, you may end up paying more interest in total over the long term.

Some investors look for interest-only mortgages to help them minimise the cost of payments on their properties. This can allow an investor to maximise their rental yield and/or their capital gains relative to their spending on the loan.

Interest-only loans can be risky, both for investors and lenders. When the loan reverts to principal and interest payments, investors may struggle to afford these payments. There are also no guarantees that a property’s value will rise enough for you to enjoy capital gains from a sale.

Also, APRA previously placed caps on how many interest-only investment loans lenders could provide, as well as how much money could be loaned in these mortgages. While these limits have since been lifted, many lenders still charge higher rates and have stricter eligibility criteria for interest-only loans, as there’s a higher risk that the borrower could default when the loan reverts to principal and interest repayments.

What deposit do I need for an investment property?

Just like when you apply for a home loan as an owner-occupier, you’ll need to pay for a percentage of the property’s value upfront as a deposit to secure your mortgage. If you can afford a higher deposit, it may be easier to qualify for a loan with a lower interest rate or more flexible features.

The size of the deposit you’ll need may depend on the loan’s Loan to Value Ratio (LVR). For example, if a loan requires an LVR of 80 per cent, you’ll need to pay a deposit of at least 20 per cent of the property’s value.

Because investment home loans are often considered riskier than owner-occupier home loans, they often require higher deposits. Some have LVR requirements of 70 per cent or lower, meaning you’ll need to offer a deposit of 30 per cent or more of the property’s value to secure the investment mortgage.

Just like with owner-occupier home loans, if your deposit on an investment property is less than 20 per cent of the property’s value, the lender will take out Lender’s Mortgage Insurance (LMI) to cover the risk that you’ll default on your payments. LMI protects the lender, not you, and most lenders pass the cost of LMI on to borrowers – the lower your deposit, the more the LMI may cost, sometimes reaching tens of thousands of dollars.

What are the potential rewards of property investment?

Return on investment

The ultimate goal of investing in property is enjoying a return above the original investment. There are two main ways to achieve this:

  1. Rental income: The money your tenant pays you, usually on a monthly basis, to live in your property.
  2. Capital growth: The increase in value of your property over time. If your property sells for more than what you bought it for, you have achieved capital growth.

For example, if you bought a unit for $600,000 and later sold it for $750,000, your capital growth would be $150,000.

Less volatility

While no investment is ever 100 per cent safe, the property market is generally less volatile than other investment options, such as the share market, which can rapidly lose value due to circumstances beyond the investor’s control. Property transactions are also generally slower than share market transactions, so they can be more carefully considered.

Intergenerational wealth transfer

Some families make property investments in order to bestow wealth to their beneficiaries through these bricks and mortar assets.

Tax benefits

Property investors may be eligible for a number of tax benefits, including capital gains discounts, capital gains offsets, deductions for repairs and maintenance if and when the property is tenanted, and negative gearing. Contact the ATO and/or a tax accountant to learn more.

What is negative gearing?

If the annual costs of your investment property are higher than the annual returns you make from it, the property is said to be negatively geared. Likewise, if you make more in annual returns on a property than you pay in costs, your property is said to be positively geared.

Negative gearing can effectively lower your taxable income, which can offer tax benefits under the right circumstances. However, there are also risks involved, so it’s important to consult a financial adviser and/or a tax accountant before you look seriously at negative gearing.

What are the risks of property investment?

Negative capital growth

Not all property markets rise and there is a risk that your investment may not yield the results you expect. This risk may be more pronounced in areas that are exposed to boom and bust sectors, such as mining.

Costs outweigh return

Sometimes property investors have to spend a lot to prepare their investment property for tenants, or to help improve the property’s value for sale. These costs could outweigh the return you receive on your investment if they do not improve the property’s capital growth or rentability.

Unable to sell or lease

If your investment property doesn’t appeal to buyers or renters, you may not receive a return on your investment.

Where should I invest?

Unlike when you buy a property as an owner-occupier, an investment property does not have to match your taste or even be located in an area where you’d like to live. However, there are other factors to consider, including:

  • Growth factors: Have property values in the local area increased or decreased in recent years? While past performance does not guarantee future performance, this can give you a better idea of what you could expect from your investment.
  • Economic factors: Is the property located in an area exposed to one industry? If so, is that industry growing or declining?
  • Social factors: Is the area appealing to potential renters? Does it have good public transport infrastructure? Is it close to schools and medical facilities?

Frequently asked questions

What is an investment loan?

An investment loan is a home loan that is taken out to purchase a property purely for investment purposes. This means that the purchaser will not be living in the property but will instead rent it out or simply retain it for purposes of capital growth.

What is bridging finance?

A loan of shorter duration taken to buy a new property before a borrower sells an existing property, usually taken to cover the financial gap that occurs while buying a new property without first selling an older one.

Usually, these loans have higher interest rates and a shorter repayment duration.

How does a redraw facility work?

A redraw facility attached to your loan allows you to borrow back any additional repayments that you have already paid on your loan. This can be a beneficial feature because, by paying down the principal with additional repayments, you will be charged less interest. However you will still be able to access the extra money when needed.

Why is it important to get the most up-to-date information?

The mortgage market changes constantly. Every week, new products get launched and existing products get tweaked. Yet many ratings and awards systems rank products annually or biannually.

We update our product data as soon as possible when lenders make changes, so if a bank hikes its interest rates or changes its product, the system will quickly re-evaluate it.

Nobody wants to read a weather forecast that is six months old, and the same is true for home loan comparisons.

Does Real Time Ratings' work for people who already have a home loan?

Yes. If you already have a mortgage you can use Real Time RatingsTM to compare your loan against the rest of the market. And if your rate changes, you can come back and check whether your loan is still competitive. If it isn’t, you’ll get the ammunition you need to negotiate a rate cut with your lender, or the resources to help you switch to a better lender.

Mortgage Calculator, Property Value

An estimate of how much your desired property is worth. 

Savings over

Select a number of years to see how much money you can save with different home loans over time.

e.g. To see how much you could save in two years by switching mortgages,  set the slider to 2.

Monthly Repayment

Your current monthly home loan repayment. To accurately calculate how much you could save, an accurate payment figure is required. If you are not certain, check your bank statement.

Mortgage Calculator, Repayments

The money you pay back to your lender at regular intervals. 

What is the amortisation period?

Popularly known as the loan term, the amortisation period is the time over which the borrower must pay back both the loan’s principal and interest. It is usually determined during the application approval process.

How will Real Time Ratings help me find a new home loan?

The home loan market is complex. With almost 4,000 different loans on offer, it’s becoming increasingly difficult to work out which loans work for you.

That’s where Real Time RatingsTM can help. Our system automatically filters out loans that don’t fit your requirements and ranks the remaining loans based on your individual loan requirements and preferences.

Best of all, the ratings are calculated in real time so you know you’re getting the most current information.

Mortgage Calculator, Loan Purpose

This is what you will use the loan for – i.e. investment. 

What is the average annual percentage rate?

Also known as the comparison rate, or sometimes the ‘true rate’ of a loan, the average annual percentage rate (AAPR) is used to indicate the overall cost of a loan after considering all the fees, charges and other factors, such as introductory offers and honeymoon rates.

The AAPR is calculated based on a standardised loan amount and loan term, and doesn’t include any extra non-standard charges.

How common are low-deposit home loans?

Low-deposit home loans aren’t as common as they once were, because they’re regarded as relatively risky and the banking regulator (APRA) is trying to reduce risk from the mortgage market.

However, if you do your research, you’ll find there is still a fairly wide selection of banks, credit unions and non-bank lenders that offers low-deposit home loans.

What is a building in course of erection loan?

Also known as a construction home loan, a building in course of erection (BICOE) loan loan allows you to draw down funds as a building project advances in order to pay the builders. This option is available on selected variable rate loans.

What factors does Real Time Ratings consider?

Real Time RatingsTM uses a range of information to provide personalised results:

  • Your loan amount
  • Your borrowing status (whether you are an owner-occupier or an investor)
  • Your loan-to-value ratio (LVR)
  • Your personal preferences (such as whether you want an offset account or to be able to make extra repayments)
  • Product information (such as a loan’s interest rate, fees and LVR requirements)
  • Market changes (such as when new loans come on to the market)

Mortgage Calculator, Repayment Type

Will you pay off the amount you borrowed + interest or just the interest for a period?

What is breach of contract?

A failure to follow all or part of a contract or breaking the conditions of a contract without any legal excuse. A breach of contract can be material, minor, actual or anticipatory, depending on the severity of the breaches and their material impact.

Mortgage Balance

The amount you currently owe your mortgage lender. If you are not sure, enter your best estimate.

Mortgage Calculator, Repayment Frequency

How often you wish to pay back your lender.