Investors can use the properties they buy as assets to build wealth, either by earning rental income or through capital appreciation. Investment mortgage offers are more likely to offer flexible features that could better suit investment properties. For example, an investment mortgage is more likely to offer flexible repayment options that could help investors better manage the rental yields from their investment property.
However, most mortgage lenders consider investment mortgages to be riskier than owner-occupier home loans. After all, an owner occupier has a vested interest in making principal and interest repayments to keep a roof over their head, and to make progress towards owning their home outright.
Meanwhile, there is no guarantee that an investment property will consistently increase in value, nor that tenants will always be readily available to pay rent. As a result, an investor may not always realise profits from their investment.
Additionally, investors may choose to minimise the mortgage repayments on their investment property to enjoy tax benefits, such as negative gearing. Thus, lenders often charge investors higher interest rates to help make up for the higher risk of potentially defaulting on their mortgage repayments.
All of this means that lenders tend to offer lower interest rates and lower fees to owner occupiers.
Two special loan types that are popular with investors include:
- Interest-only investment loans: For a limited time, your mortgage payments will only cover the interest charges on the loan and won’t reduce the principal amount you owe. This can make your repayments more affordable until the interest-only period expires and the loan reverts to principal & interest repayments. Keep in mind that while interest-only repayments may cost you less over the short term, an interest-only period can mean it takes longer to pay off your investment property, costing you more in total interest charges over the life of the loan.
- Line of credit: A mortgage where you can use your equity in the property as security to borrow money. This line of credit works similarly to a credit card with a high limit - you can borrow and repay money as you need it, only paying interest on what’s currently owing.
Before you apply for one of these loans, or any other investment options, be sure to consider the features and benefits, as well as the interest rates, fees and other charges you're likely to incur. Don't forget to weigh up repayment schedules and other options to extract the most value for your situation.