Investing in property is one way Australians can potentially watch their money grow in value and deliver yield. If you’re looking to invest in property, there’s a few things you’ll need to know about investment loans. 

investment property

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3.49%

Variable

3.49%

UBank

$1.5k

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

3.65

/ 5
More details

3.59%

Variable

3.49%

Athena Home Loans

$898

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

3.10

/ 5
More details

3.49%

Variable

3.45%

Athena Home Loans

$1.5k

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

3.53

/ 5
More details

3.49%

Fixed - 5 years

3.85%

UBank

$1.5k

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

3.05

/ 5
More details

3.79%

Variable

3.79%

Hume Bank

$1.5k

Redraw facility
Offset Account
Borrow up to 85%
Extra Repayments
Interest Only
Owner Occupied

3.27

/ 5
More details

3.67%

Variable

3.72%

Heritage Bank

$1.5k

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

3.37

/ 5
More details

3.40%

Variable

3.42%

State Custodians

$1.5k

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

4.07

/ 5
More details

4.47%

Variable

4.66%

Pepper

$1.7k

Redraw facility
Offset Account
Borrow up to 65%
Extra Repayments
Interest Only
Owner Occupied

2.29

/ 5
More details

4.66%

Variable

4.85%

Pepper

$1.7k

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

2.00

/ 5
More details

4.70%

Variable

4.72%

Heritage Bank

$1.2k

Redraw facility
Offset Account
Borrow up to 85%
Extra Repayments
Interest Only
Owner Occupied

1.82

/ 5
More details

3.77%

Variable

4.15%

Heritage Bank

$1.5k

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

3.41

/ 5
More details

3.99%

Fixed - 1 year

4.21%

Heritage Bank

$1.6k

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

3.19

/ 5
More details

3.79%

Variable

3.79%

Hume Bank

$1.5k

Redraw facility
Offset Account
Borrow up to 85%
Extra Repayments
Interest Only
Owner Occupied

3.22

/ 5
More details

3.59%

Fixed - 3 years

4.14%

Heritage Bank

$1.5k

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

3.46

/ 5
More details

3.59%

Fixed - 2 years

4.15%

Heritage Bank

$1.5k

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

3.39

/ 5
More details

5.21%

Variable

5.38%

Heritage Bank

$1.3k

Redraw facility
Offset Account
Borrow up to 85%
Extra Repayments
Interest Only
Owner Occupied

1.55

/ 5
More details

3.69%

Variable

3.83%

Virgin Money

$1.5k

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

3.52

/ 5
More details

5.39%

Variable

5.54%

Heritage Bank

$1.8k

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

1.96

/ 5
More details

4.19%

Fixed - 5 years

4.35%

Heritage Bank

$1.6k

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

2.67

/ 5
More details

3.74%

Fixed - 2 years

3.84%

Virgin Money

$1.5k

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

3.23

/ 5
More details

Learn more about home loans

Can anyone get an investment property?

An investment property loan is obtained for the purpose of buying a property you don’t intend to live in, but hope to make a return from. Investment properties are one of the more popular assets you can purchase in Australia, due to our historically ‘booming’ housing market and low interest rates. 

As long as you can afford the investment, generally any Australian could buy an investment property.

If you’re looking to buy a property to rent out, a lender is likely to ask you to prove that you either have enough savings or high enough regular income to meet mortgage repayments if the property is unoccupied. 

The lender will also be aware of the potential for a rise in the value of your property asset over a period. They will also consider information about vacancy rates in your area and any trends in property prices.

Further, as you will be relying on rental income to pay off the loan, you need to bear in mind that there may be months when you are changing over tenants. This may involve hefty expenses in preparing the property for reoccupation. These can all eat into rental income, so your lender will want to be sure that your calculations are as accurate as possible.

Where should you invest?

When you’re choosing where to invest you generally have more flexibility than choosing your own home to live in. The property does not have to match your taste or even be in an area you’d like to live.

Factors you may wish to consider before choosing where to live:

  • Growth:  Have properties in your desired area grown or fallen in value in recent years?

  • Economic factors: Is the area exposed to one industry? If so, is that industry on a growth trajectory? Or declining in value?

  • Social factors: Is the area appealing to potential renters? Does it have good public transport infrastructure? Is it close to schools and medical facilities?

What are the benefits of investor loans?

The rewards you’ll reap by taking out an investor loan are the same as what you may get out of investing in property. This includes:

Potential return on investment

The ultimate goal of investing in property is return above the original investment. There are two ways to achieve that. The first is to sell for a higher price than the price you buy it for. The second is to earn income from your property by renting it out to tenants. As the property market is imperfect, there is a chance you could sell your property for more than its true value. There’s also the obvious risk the market will fall, and your property will lose value.

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.

Less volatile

While no investment is ever 100 per cent safe, the property market is generally less volatile than other markets. For example, the sharemarket can rapidly lose value due to circumstances outside of the investor’s control. Property transactions are slower than sharemarket transactions.

What is negative gearing?

Investors borrow money with the intention of making a profit over a period of time on their investment. However, if you are unable to make a profit because your costs outweigh your return, that’s called negative gearing.

Investors with negatively geared properties may be able to reduce their taxable income. Negative gearing has attracted controversy over the years, with some commentators blaming it for housing affordability problems in major capital cities. For more information, check out ASIC’s MoneySmart website

What are the drawbacks of investor loans?

There are two home loan types that are specific to what you plan on doing with your potential property: owner-occupier or investment home loans. The former is designed for those intending to live in the home they buy, and the latter is made for property investors. 

They both carry different upsides and downsides, but lenders are typically more cautious with investment loans, as they carry greater risk. Because of this, there are a few downsides to investment loans, including:

Higher rates

It is in the lenders interest to guard itself from risk, so investor loans typically come with higher rates. The lender is effectively buying into a higher risk with an investment loan compared to an owner-occupier loan. This is because the borrower will be engaging in a different business transaction. 

Put simply, investors see the property as another asset in their portfolio. They are more likely to engage in risk-taking behaviour than an owner-occupier, who would make ‘stable’ 30-year long repayments. 

They can use different tactics to reduce their overall costs, such making interest-only repayments. As they’re only paying interest, and not reducing the principal, this is considered a much riskier practice. Once the interest-only term ended (typically up to five years) the repayment amounts will become significantly higher, and the investor may no longer be able to afford them. 

First home buyer grant

If you’re a first home buyer looking to invest in property, keep in mind you won’t be eligible for First Home Buyer Grants. While these grants differ in each state or territory across Australia, they generally require the homeowner to live in the property for at least 6 months. 

Higher regulation 

Taking out a loan for an investment property comes with higher scrutiny and regulation than an owner-occupier loan. While this isn’t a bad thing in terms of mitigating risk, it’s important to keep in mind that regulators always have their eye on the investor loan market.

For example, in 2014 the Australian Prudential Regulatory Authority (APRA) raised concerns about the growth of the investment housing market. It asked Australia’s lenders to set a cap of 10 per cent on new investor lending. Many lenders responded by changing the eligibility criteria for investor borrowers and by increasing investor rates.

While APRA may have since lifted this cap, the gap between investor loan rates and owner-occupier loan rates is still wide. 

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 do you determine which home loan rates/products I’m shown?

When you check your home loan rate, you’ll supply some basic information about your current loan, including:

  • the amount owing on your mortgage
  • the value of your property
  • your current interest rate
  • name of existing lender
  • property address

We’ll compare this information to the home loan options in the RateCity database, and show you which home loan products you may be eligible to apply for.

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 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.

Mortgage Calculator, Property Value

An estimate of how much your desired property is worth. 

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.

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 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.

Mortgage Calculator, Loan Purpose

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

What is an interest-only loan? (include 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.

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 appreciation or depreciation of property?

The increase or decrease in the value of a property due to factors including inflation, demand and political stability.

What does pre-approval' mean?

Pre-approval for a home loan is an agreement between you and your lender that, subject to certain conditions, you will be able to borrow a set amount when you find the property you want to buy. This approach is useful if you are in the early stages of surveying the property market and need to know how much money you can spend to help guide your search.

It is also useful when you are heading into an auction and want to be able to bid with confidence. Once you have found the property you want to buy you will need to receive formal approval from your bank.

How much money can I borrow for a home loan?

Tip: You can use RateCity how much can I borrow calculator to get a quick answer.

How much money you can borrow for a home loan will depend on a number of factors including your employment status, your income (and your partner’s income if you are taking out a joint loan), the size of your deposit, your living expenses and any other debt you might hold, including credit cards. 

A good place to start is to work out how much you can afford to make in monthly repayments, factoring in a buffer of at least 2 – 3 per cent to allow for interest rate rises along the way. You’ll also need to factor in additional costs that come with purchasing a property such as stamp duty, legal fees, building inspections, strata or council fees.

If you are planning on renting the property, you can factor in the expected rental income to help offset the mortgage, but again it’s prudent to add a significant buffer to allow for rental management fees, maintenance costs and short periods of no rental income when tenants move out. It’s also wise to factor in changes in personal circumstances – the typical home loan lasts for around 30 years and a lot can happen between now and then.

What is stamp duty?

Stamp duty is the tax that must be paid when purchasing a property in Australia.

It is calculated by the state government based on the selling price of the property. These charges may differ for first homebuyers. You can calculate the stamp duty for your property using our stamp duty calculator.

What is principal and interest'?

‘Principal and interest’ loans are the most common type of home loans on the market. The principal part of the loan is the initial sum lent to the customer and the interest is the money paid on top of this, at the agreed interest rate, until the end of the loan.

By reducing the principal amount, the total of interest charged will also become smaller until eventually the debt is paid off in full.

What is a low-deposit home loan?

A low-deposit home loan is a mortgage where you need to borrow more than 80 per cent of the purchase price – in other words, your deposit is less than 20 per cent of the purchase price.

For example, if you want to buy a $500,000 property, you’ll need a low-deposit home loan if your deposit is less than $100,000 and therefore you need to borrow more than $400,000.

As a general rule, you’ll need to pay LMI (lender’s mortgage insurance) if you take out a low-deposit home loan. You can use this LMI calculator to estimate your LMI payment.

Are bad credit home loans dangerous?

Bad credit home loans can be dangerous if the borrower signs up for a loan they’ll struggle to repay. This might occur if the borrower takes out a mortgage at the limit of their financial capacity, especially if they have some combination of a low income, an insecure job and poor savings habits.

Bad credit home loans can also be dangerous if the borrower buys a home in a stagnant or falling market – because if the home has to be sold, they might be left with ‘negative equity’ (where the home is worth less than the mortgage).

That said, bad credit home loans can work out well if the borrower is able to repay the mortgage – for example, if they borrow conservatively, have a decent income, a secure job and good savings habits. Another good sign is if the borrower buys a property in a market that is likely to rise over the long term.

What is a guarantor?

A guarantor is someone who provides a legally binding promise that they will pay off a mortgage if the principal borrower fails to do so.

Often, guarantors are parents in a solid financial position, while the principal borrower is a child in a weaker financial position who is struggling to enter the property market.

Lenders usually regard borrowers as less risky when they have a guarantor – and therefore may charge lower interest rates or even approve mortgages they would have otherwise rejected.

However, if the borrower falls behind on their repayments, the lender might chase the guarantor for payment. In some circumstances, the lender might even seize and sell the guarantor’s property to recoup their money.