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Commercial vs residential home loans

Features, rates, fees and credit accessibility are just some of the things that vary between a commercial and a residential investment loan. Find out more about the key differences between the two.


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There are fundamental differences between an investment loan that is used to purchase commercial property and a loan that is suited to the purchase of a residential property.

Find out how the structure of these loans differ and what you should keep in mind when tossing up between buying a commercial property and buying a residential property.

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Property types

One primary difference between commercial and residential investment mortgages is the property type (that is, whether you are acquiring a business or residential property).

For example, if you take out a commercial loan, you can potentially purchase a business property such as retail space, a child care facility, restaurant, hotel, medical centre, or even a digital billboard (if you want to get creative).

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Data indicated here is updated regularly
Loan purpose
Offset account
Loan type
Repayment type
Your filter criteria do not match any product
Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
UBank UHomeLoan Variable Rate - Discount Offer for Investor Variable P&I Rate
$0 p.a.
Get a discounted, low-fee investor loan from a convenient online lender. 20% deposit required.
Athena Liberate Home Loan - 70% to 80% LVR Investor, P&I
$0 p.a.
A competitive investor variable rate that falls as you build equity. Low Rate Home Loan with Offset - LVR 60% to 80% (Investment, P&I)
$0 p.a.
This investment loan keeps fees low, has a sharp interest rate and comes with a 100% offset account. This loan is not available for construction.
Newcastle Permanent Building Society Fixed Rate Home Loan - 1 Year Fixed (Owner Occupier, P&I)
$0 p.a.
$2,000 refinance cashback
Investors can take advantage of a short term fixed rate with no ongoing fees. $2,000 cashback for eligible refinancers borrowing $250,000 or more.
UBank UHomeLoan - 1 Year Fixed Rate (Investor, P&I)
$0 p.a.
Investors can enjoy flexible repayments and an easy application process with this pioneering online lender.
Athena Evaporate Home Loan - 60% to 70% LVR  Investor, P&I
$0 p.a.
Athena's refinance offer for investors and owner occupiers.
Well Home Loans Balanced Fixed Home Loan - 3 Year (Investor, P&I)
$0 p.a.
A competitive 3 year investor rate with principal and interest repayments. Optional offset account with a $10 monthly fee. Not available for construction purposes.
Pepper Money Essential Prime Full Doc Home Loan - LVR >75% up to 80%
$10 monthly ($120 p.a.)
This is a competitive, flexible variable rate suitable for borrowers with a good credit history. Borrow up to 80%.
Athena Celebrate Home Loan - 60% LVR  Investor, P&I
$0 p.a.
Investors with large 40% deposits or equity can get this low variable rate. A competitive option for investors looking to refinance.
Well Home Loans Balanced Variable - LVR 80% (Investor, P&I)
$0 p.a.
If you're an investor with a 20% deposit saved you can get this low rate mortgage. Not available for construction.

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Applications are subject to approval. Conditions, fees and charges apply. Please note that you need to be an Australian citizen or permanent resident to apply.

Credit services for Aussie Select, Aussie Activate and Aussie Elevate products are provided by AHL Investments Pty Ltd ACN 105 265 861 (“Aussie”) and its appointed credit representatives, Australian Credit Licence 246786. Credit for Aussie Select products is provided by Residential Mortgage Group Pty Ltd ACN 152 378 133, Australian Credit Licence 414133 (“RMG”). RMG is a wholly-owned subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124 AFSL and Australian Credit Licence 234945. Credit for Aussie Activate products is provided by Pepper Finance Corporation Limited ACN 094 317 647 (“Pepper”). Pepper Group Limited ACN 094 317 665, Australian Credit Licence 286655 acts on behalf of Pepper. Credit services for Aussie Elevate products are provided by AHL Investments Pty Ltd ACN 105 265 861 Australian Credit Licence 246786 (“Aussie”) and its appointed credit representatives. Aussie is a trade mark of AHL Investments Pty Ltd ABN 27 105 265 861. Credit and any applicable offset accounts for Aussie Elevate are issued by Bendigo and Adelaide Bank Limited ABN 11 068 049 178 AFSL / Australian Credit Licence 237879.

Aussie is a trade mark of AHL Investments Pty Ltd. Aussie is a subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124. ©2020 AHL Investments Pty Ltd ABN 27 105 265 861 Australian Credit Licence 246786.

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On the other hand, if you’re buying residential property, you are generally limited to purchasing a house, apartment or unit.

Home loan structure

Most commercial property loans are similar to residential investment loans. You can select from a variable, fixed or split rate, and you can also choose between making principal and interest or interest-only repayments. (Most investors prefer interest-only repayments due to the potential tax benefits.)

However, the type of home loan product (and features) that are suited for a commercial or residential purchase are different.

For instance, you may want to consider a line-of-credit commercial home loan or a self-managed super fund (SMSF) home loan for commercial property so you have greater flexibility to access your funds (due to the higher expense of upgrades for commercial real estate compared to residential real estate).

On the other hand, if you have bad credit history or limited savings, you may have a better chance of qualifying for a residential investment loan. You may consider an introductory rate home loan or a low doc home loan depending on your ability to access finance. Based on your strategy, you may need to find an interest-only investment loan with a 100% offset account to reap tax benefits.

Speak to a commercial broker or residential broker about the structure of your home loan.

Loan-to-value ratio (LVR)

Depending on your financial position and the lender’s individual policy, most banks will lend up to 60-70% LVR for a commercial property loan. The amount you can borrow will also depend on the potential rent or yield that can be generated from the property. As a result, you typically need a 30% deposit to gain approval for a commercial home loan. Due to the higher purchasing cost of commercial property, finance for a commercial loan is less accessible compared to a residential investment loan.

However, the LVR is generally higher for residential home loans, with most lenders allowing you to borrow between 90-95% of the property value (depending on your credit history and your serviceability potential). If you are a blue-chip borrower and you can borrow with 90-95% LVR, then you may only need to come up with 5%-10% deposit to qualify.

It’s advised that you complete a 20% deposit for a full documentation loan in order to avoid paying lenders mortgage insurance (LMI).

Interest rate and fees

As a rule of thumb, interest rates may be higher for commercial loans compared to residential home loans due to the inherent risk of commercial loans (such as longer untenanted periods).

To further offset the risk of commercial loans, fees are generally higher for commercial loans than residential loans.

Eligibility criteria

While your ability to qualify for a commercial or residential loan will depend on the lender’s eligibility criteria, banks normally impose stricter criteria for commercial property loans (as reflected in lower loan-to-value ratios and higher interest rates). This is due to the fact that a commercial property may be more difficult to sell in the event that you default on the loan.

As a result, the valuation of a commercial property is more detailed compared to the valuation of a residential property, and you may be required to provide more documentation than you would with a residential investment loan.

Residential vs commercial property

Investing in commercial real estate differs significantly to investing in residential property. While your role as an investor is similar – you rent out the property and receive rental income from the tenant – there are various implications of both residential and commercial property that you should keep in mind.

Rental return

A commercial property generally offers a higher return on investment (ROI) compared to a residential property. Data from CoreLogic (2015) indicates that the average rental yield for a commercial property, such as a warehouse, is around 8%-10%, whereas the return for a residential property, such as a house, averages around 3.5%.

Lease period

The average lease period for a commercial property is 3-10 years (sometimes as long as 15 years) whereas the lease period for a residential tenant may be just 6-12 months with no guarantee of renewal. The difference in lease periods is due to the fact that commercial tenants tend to stay in the property for longer, as they may be more inclined to make improvements to the property.

For instance, a commercial tenant may invest $25,000 to renovate the space for their business, whereas a residential tenant is less likely to invest money in the property (especially if it’s an apartment with strata by-laws).

Untenanted period risk

While untenanted periods are a risk for both commercial and residential properties, this risk is more adverse for commercial property. This is due to the fact that tenants tend to be more hesitant, as they could be locked in for 5-10 years.

Most banks are conservative about lending for commercial properties because the borrower will have to cover expenses during untenanted periods.

Cost of upgrades

Renovating a commercial property such as a retail space or office may be relatively expensive compared to renovating a residential property. This is because upgrades for a commercial property may require a greater scope of work for a larger area and include major tasks such as the removal of asbestos or changing the fit-out.

Upgrades for residential property usually involve smaller and less expensive jobs such as painting or installing new appliances.

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Logo for Westpac Flexi First Option Home Loan - Basic Variable Rate (Owner Occupier, P&I)
Westpac Flexi First Option Home Loan - Basic Variable Rate (Owner Occupier, P&I)

Up to $3,000 refinance cashback. A flexible and competitive variable rate loan. Eligible borrowers refinancing $250,000 or more can get $2,000 cashback per property plus a bonus $1,000 for their first application. Other conditions apply.

Logo for St.George Basic Home Loan - LVR 60% to 80% (Owner Occupier, P&I)
St.George Basic Home Loan - LVR 60% to 80% (Owner Occupier, P&I)

Up to $4,000 refinance cashback. A competitive variable rate loan from St.George. Refinancers borrowing $250,000 or more can get $4,000 cashback (Other terms, conditions and exclusions apply).

Logo for Athena Liberate Home Loan - 70% to 80% LVR Owner Occupier, P&I
Athena Liberate Home Loan - 70% to 80% LVR Owner Occupier, P&I

A competitive variable rate mortgage for owner occupiers $0 application and $0 ongoing fees. This interest rate falls over time as you pay off the loan.

Logo for UBank UHomeLoan Variable Rate - Discount Offer for Owner Occupiers, Variable P&I Rate
UBank UHomeLoan Variable Rate - Discount Offer for Owner Occupiers, Variable P&I Rate

Take advantage of a low-fee mortgage with a special interest rate of just 2.49% p.a. and a 2.49% p.a. comparison rate.

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