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.

Compare investment property home loans

Sort By
Product
Advertised Rate
Comparison Rate*
Company
Monthly Repayment
Features
Real Time Rating™
Go to site

2.74%

Variable

2.76%

loans.com.au

$1,382

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

2.97

/ 5
View Now
More details

3.02%

Variable

3.05%

Yard

$1,426

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

2.36

/ 5
More details

2.79%

Variable

2.73%

Reduce Home Loans

$1,390

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

2.63

/ 5
View Now
More details

2.89%

Variable

2.89%

Reduce Home Loans

$1,406

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

2.58

/ 5
View Now
More details

2.69%

Variable

2.69%

Athena Home Loans

$1,375

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

2.90

/ 5
View Now
More details

2.74%

Variable

2.71%

Athena Home Loans

$1,382

Redraw facility
Offset Account
Borrow up to 70%
Extra Repayments
Interest Only
Owner Occupied

2.79

/ 5
View Now
More details

2.79%

Variable

2.74%

Athena Home Loans

$1,390

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

2.67

/ 5
View Now
More details

2.99%

Variable

2.81%

Athena Home Loans

$748

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

1.85

/ 5
View Now
More details

2.29%

Fixed - 3 years

2.74%

UBank

$1,314

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

2.22

/ 5
View Now
More details

2.74%

Fixed - 5 years

2.83%

UBank

$1,382

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

2.29

/ 5
View Now
More details

2.89%

Variable

2.89%

UBank

$1,406

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

2.57

/ 5
View Now
More details

2.99%

Intro 24 months

2.93%

Illawarra Credit Union

$1,470

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

1.85

/ 5
View Now
More details

2.79%

Fixed - 1 year

3.23%

Adelaide Bank

$698

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

2.17

/ 5
More details

3.29%

Variable

3.71%

NAB

$823

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

1.60

/ 5
More details

2.49%

Variable

2.49%

Pacific Mortgage Group

$1,344

Redraw facility
Offset Account
Borrow up to 75%
Extra Repayments
Interest Only
Owner Occupied

3.82

/ 5
More details

2.49%

Variable

2.52%

Homestar Finance

$1,344

Redraw facility
Offset Account
Borrow up to 70%
Extra Repayments
Interest Only
Owner Occupied

3.66

/ 5
More details

2.69%

Fixed - 1 year

2.54%

Homestar Finance

$1,375

Redraw facility
Offset Account
Borrow up to 70%
Extra Repayments
Interest Only
Owner Occupied

3.12

/ 5
More details

2.69%

Fixed - 2 years

2.55%

Homestar Finance

$1,375

Redraw facility
Offset Account
Borrow up to 70%
Extra Repayments
Interest Only
Owner Occupied

3.03

/ 5
More details

2.69%

Fixed - 3 years

2.57%

Homestar Finance

$1,375

Redraw facility
Offset Account
Borrow up to 70%
Extra Repayments
Interest Only
Owner Occupied

2.94

/ 5
More details

2.18%

Fixed - 1 year

2.58%

Homestar Finance

$1,298

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

3.15

/ 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 a loan-to-value ratio (LVR)?

A loan-to-value ratio (otherwise known as a Loan to Valuation Ratio or LVR), is a calculation lenders make to work out the value of your loan versus the value of your property, expressed as a percentage.   Lenders use this calculation to help assess your suitability for a home loan, and whether you need to pay lender’s mortgage insurance (LMI). As a general rule, most banks will require you to pay LMI if your loan-to-value ratio is 80 per cent or more.   LVR is worked out by dividing the loan amount by the value of the property. If you are looking for a quick ball-park estimate of LVR, the size of your deposit is a good indicator as it is directly proportionate to your LVR. For instance, a loan with an LVR of 80 per cent requires a deposit of 20 per cent, while a 90 per cent LVR requires 10 per cent down payment. 

LOAN AMOUNT / PROPERTY VALUE = LVR%

While this all sounds simple enough, it is worth doing a more accurate calculation of LVR before you commit to buying a place as there are some traps to be aware of. Firstly, the ‘loan amount’ is the price you paid for the property plus additional costs such as stamp duty and legal fees, minus your deposit amount. Secondly, the ‘property value’ is determined by your lender’s valuation of the property, not the price you paid for it, and sometimes these can differ so where possible, try and get your bank to evaluate the property before you put in an offer.

What is a line of credit?

A line of credit, also known as a home equity loan, is a type of mortgage that allows you to borrow money using the equity in your property.

Equity is the value of your property, less any outstanding debt against it. For example, if you have a $500,000 property and a $300,000 mortgage against the property, then you have $200,000 equity. This is the portion of the property that you actually own.

This type of loan is a flexible mortgage that allows you to draw on funds when you need them, similar to a credit card.

What is an interest-only loan? How do I work out interest-only loan repayments?

An ‘interest-only’ loan is a loan where the borrower is only required to pay back the interest on the loan. Typically, banks will only let lenders do this for a fixed period of time – often five years – however some lenders will be happy to extend this.

Interest-only loans are popular with investors who aren’t keen on putting a lot of capital into their investment property. It is also a handy feature for people who need to reduce their mortgage repayments for a short period of time while they are travelling overseas, or taking time off to look after a new family member, for example.

While moving on to interest-only will make your monthly repayments cheaper, ultimately, you will end up paying your bank thousands of dollars extra in interest to make up for the time where you weren’t paying off the principal.

What is equity? How can I use equity in my home loan?

Equity refers to the difference between what your property is worth and how much you owe on it. Essentially, it is the amount you have repaid on your home loan to date, although if your property has gone up in value it can sometimes be a lot more.

You can use the equity in your home loan to finance renovations on your existing property or as a deposit on an investment property. It can also be accessed for other investment opportunities or smaller purchases, such as a car or holiday, using a redraw facility.

Once you are over 65 you can even use the equity in your home loan as a source of income by taking out a reverse mortgage. This will let you access the equity in your loan in the form of regular payments which will be paid back to the bank following your death by selling your property. But like all financial products, it’s best to seek professional advice before you sign on the dotted line.

What are the pros and cons of no-deposit home loans?

It’s no longer possible to get a no-deposit home loan in Australia. In some circumstances, you might be able to take out a mortgage with a 5 per cent deposit – but before you do so, it’s important to weigh up the pros and cons.

The big advantage of borrowing 95 per cent (also known as a 95 per cent home loan) is that you get to buy your property sooner. That may be particularly important if you plan to purchase in a rising market, where prices are increasing faster than you can accumulate savings.

But 95 per cent home loans also have disadvantages. First, the 95 per cent home loan market is relatively small, so you’ll have fewer options to choose from. Second, you’ll probably have to pay LMI (lender’s mortgage insurance). Third, you’ll probably be charged a higher interest rate. Fourth, the more you borrow, the more you’ll ultimately have to pay in interest. Fifth, if your property declines in value, your mortgage might end up being worth more than your home.

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.

Will I have to pay lenders' mortgage insurance twice if I refinance?

If your deposit was less than 20 per cent of your property’s value when you took out your original loan, you may have paid lenders’ mortgage insurance (LMI) to cover the lender against the risk that you may default on your repayments. 

If you refinance to a new home loan, but still don’t have enough deposit and/or equity to provide 20 per cent security, you’ll need to pay for the lender’s LMI a second time. This could potentially add thousands or tens of thousands of dollars in upfront costs to your mortgage, so it’s important to consider whether the financial benefits of refinancing may be worth these costs.

Mortgage Calculator, Property Value

An estimate of how much your desired property is worth. 

What is equity and home equity?

The percentage of a property effectively ‘owned’ by the borrower, equity is calculated by subtracting the amount currently owing on a mortgage from the property’s current value. As you pay back your mortgage’s principal, your home equity increases. Equity can be affected by changes in market value or improvements to your property.

How much can I borrow with a guaranteed home loan?

Some lenders will allow you to borrow 100 per cent of the value of the property with a guaranteed home loan. For that to happen, the lender would have to feel confident in your ability to pay off the mortgage and in the security provided by your guarantor.

What is appraised value?

An estimation of a property’s value before beginning the mortgage approval process. An appraiser (or valuer) is an expert who estimates the value of a property. The lender generally selects the appraiser or valuer before sanctioning the loan.

How do I calculate monthly mortgage repayments?

Work out your mortgage repayments using a home loan calculator that takes into account your deposit size, property value and interest rate. This is divided by the loan term you choose (for example, there are 360 months in a 30-year mortgage) to determine the monthly repayments over this time frame.

Over the course of your loan, your monthly repayment amount will be affected by changes to your interest rate, plus any circumstances where you opt to pay interest-only for a period of time, instead of principal and interest.

Mortgage Calculator, Loan Purpose

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

I have a poor credit rating. Am I still able to get a mortgage?

Some lenders still allow you to apply for a home loan if you have impaired credit. However, you may pay a slightly higher interest rate and/or higher fees. This is to help offset the higher risk that you may default on your repayments.

How do I know if I have to pay LMI?

Each lender has its own policies, but as a general rule you will have to pay lender’s mortgage insurance (LMI) if your loan-to-value ratio (LVR) exceeds 80 per cent. This applies whether you’re taking out a new home loan or you’re refinancing.

If you’re looking to buy a property, you can use this LMI calculator to work out how much you’re likely to be charged in LMI.

What happens to my home loan when interest rates rise?

If you are on a variable rate home loan, every so often your rate will be subject to increases and decreases. Rate changes are determined by your lender, not the Reserve Bank of Australia, however often when the RBA changes the cash rate, a number of banks will follow suit, at least to some extent. You can use RateCity cash rate to check how the latest interest rate change affected your mortgage interest rate.

When your rate rises, you will be required to pay your bank more each month in mortgage repayments. Similarly, if your interest rate is cut, then your monthly repayments will decrease. Your lender will notify you of what your new repayments will be, although you can do the calculations yourself, and compare other home loan rates using our mortgage calculator.

There is no way of conclusively predicting when interest rates will go up or down on home loans so if you prefer a more stable approach consider opting for a fixed rate loan.

What happens when you default on your mortgage?

A mortgage default occurs when you are 90 days or more behind on your mortgage repayments. Late repayments will often incur a late fee on top of the amount owed which will continue to gather interest along with the remaining principal amount.

If you do default on a mortgage repayment you should try and catch up in next month’s payment. If this isn’t possible, and missing payments is going to become a regular issue, you need to contact your lender as soon as possible to organise an alternative payment schedule and discuss further options.

You may also want to talk to a financial counsellor. 

How personalised is my rating?

Real Time Ratings produces instant scores for loan products and updates them based what you tell us about what you’re looking for in a loan. In that sense, we believe the ratings are as close as you get to personalised; the more you tell us, the more we customise to ratings to your needs. Some borrowers value flexibility, while others want the lowest cost loan. Your preferences will be reflected in the rating. 

We also take a shorter term, more realistic view of how long borrowers hold onto their loan, which gives you a better idea about the true borrowing costs. We take your loan details and calculate how much each of the relevent loans would cost you on average each month over the next five years. We assess the overall flexibility of each loan and give you an easy indication of which ones are likely to adjust to your needs over time. 

How often is your data updated?

We work closely with lenders to get updates as quick as possible, with updates made the same day wherever possible.