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Granny flat home loans

There are a variety of home loan options for financing a granny flat.

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A small granny flat.

If you want to add space to your house but don't have the space or money to build a full addition, a granny flat can be a great option. And if you're looking to build a granny flat, there are a variety of finance options.

Why add a granny flat?

A granny flat can add living space to your home and provide a private space for teens or adult children, or just a convenient spot for out-of-town guests. But a granny flat can also be an investment opportunity.

Granny flats are in rising demand in a tight rental market. According to 2016 data from Flatmates.com.au, granny flat listings as private rental accommodation rose 16% over the year, while searches for granny flats as rental accommodation increased a staggering 84%.

A granny flat can be a great way to generate rental income without purchasing an entire investment property. If the unit is self-contained with a bathroom and kitchen, and particularly if it has a private entrance, renting out a granny flat can be a reasonably unobtrusive experience for both the landlord and tenant.

If you're looking to generate income by adding a granny flat, you'll likely have to finance its construction. Fortunately, there are a number of options.

How do I finance a granny flat?

According to Domain, Australian-made prefabricated granny flats can cost as much as $120,000. This is a significant cost, but could be well worth it for the additional space and potential rental income the unit will provide. But if you're looking to finance one, you'll need to consider your situation to determine which finance option is right for you.

Top up your existing home loan

A home loan top up is the process of increasing your existing loan amount. A top up uses the equity in your home to allow you to increase the home loan amount.

If you top up your home loan, your lender will perform a new valuation on your home and offer you additional funds based on the equity in your property. The equity is the difference between what your home is worth and how much you owe. For instance, if your home is worth $750,000 and you owe $600,000 on it, you've built up $150,000 in equity.

The benefit of a home loan top up is that it's the same loan facility as your original mortgage. You won't have to go through a new application process or pay additional establishment or ongoing fees.

The drawback to using this strategy to invest in a granny flat is that it can make your expenses difficult to track for tax purposes. If you're using your granny flat as a rental property, the interest on your loan will be tax deductible. But with a home loan top up, there will be no clear distinction between the repayments allocated toward your owner-occupied home and your investment granny flat. While a good accountant will be able to suss out the amount of interest you're paying toward your granny flat as a proportion of the total interest you're paying on your home loan, using a top up to fund an investment will definitely make these calculations more difficult.

Get a line of credit loan

A line of credit loan offers you a credit limit based upon the amount of equity you have in your home. Line of credit loans function much like a credit card, wherein you will only be charged interest on the amount you use rather than the full credit limit.

Using a line of credit to fund a granny flat investment can be a savvy tax strategy. Because you'll only make interest repayments on the amount you've used, you'll be maximising your tax-deductible debt.

However, one of the main drawbacks of a line of credit loan is the higher interest rate usually charged by these products. If you top up your existing loan, you'll continue paying your current interest rate. However, a line of credit loan will be a separate loan facility requiring a separate application process and will come with a higher rate.

Compare line of credits home loans

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
P&N Bank Equity Access Home Loan
4.87%
$395
$10 monthly ($120 p.a.)
90%
A home loan which gives flexible access to your equity.
Aussie Select Line of Credit - (LVR 70.01% to 80%) (Owner Occupier)
3.59%
$0
$15 monthly ($180 p.a.)
80%
A low rate line of credit with low ongoing fee.
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Aussie Home Loans Logo

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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.

By submitting this form, you agree to the Aussie privacy policy.

After entering your details a mortgage broker from Aussie will call you. They will discuss your situation and help you find a suitable loan.

  • A comparison of home loans from multiple lenders.
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  • Free suburb and property reports.

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Get a construction loan

In certain situations, it may be wise to use a construction loan to fund a granny flat. For instance, if you haven't yet built up enough equity for a line of credit loan or home loan top up to cover the cost of the granny flat, a construction loan may be a good option.

A construction loan will require you to use a builder, who will have to provide your lender with a signed contract and plans for the construction of your granny flat. You'll also need to obtain council approval.

The drawback of using a construction loan to fund your granny flat is that you won't be able to use a prefabricated granny flat. These units often don't require council approval and can be constructed quickly and simply. Using a builder to construct a granny flat can be a considerably longer and more costly process.

Compare construction loans

Aussie Home Loans Logo

Enter your details and get a free consultation with an expert broker from Aussie.

By submitting this form, you agree to the Finder Privacy and Cookies Policy and Terms of Use

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.

By submitting this form, you agree to the Aussie privacy policy.

After entering your details a mortgage broker from Aussie will call you. They will discuss your situation and help you find a suitable loan.

  • A comparison of home loans from multiple lenders.
  • Expert guidance through the entire application process.
  • Free suburb and property reports.

Aussie Home Loans Lender Logos

The Adviser’s number 1 placed mortgage broker 8 years running (2013-2020)

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
Greater Bank Great Rate Home Loan - Construction Loan (Owner Occupier, P&I)
3.66%
3.67%
$0
$0 p.a.
90%
Fund the construction of your new family home with a very competitive variable interest rate. Available with a 10% deposit.
Heritage Bank Discount Variable Home Loan - LVR ≤ 80% (Owner Occupier, P&I) New Customers Only
2.78%
2.83%
$600
$0 p.a.
80%
Family guarantee option available. Enjoy flexible repayments and a low minimum loan amount.
ANZ Land Loan - Owner Occupier (P&I)
4.39%
4.49%
$600
$5 monthly ($60 p.a.)
90%
Buy vacant land with a competitive interest rate. 5% deposit option available.
Heritage Bank Fixed Rate Home Loan - 2 Year Fixed Rate (Owner Occupier, P&I) New Customers Only
2.59%
4.30%
$600
$8 monthly ($96 p.a.)
95%
Get a partial offset account and the option to make interest-only repayments.
Sydney Mutual Bank Special Fixed Home Loan - 3 Year (Owner Occupier, P&I)
2.28%
2.86%
$250
$0 p.a.
95%
A competitive fixed rate loan for home buyers. Available with a 5% deposit.
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Personal loan

If you're purchasing a prefabricated granny flat but haven't built up enough equity for a line of credit loan or home loan top up, you could consider an unsecured personal loan. These loans can be simple and quick to obtain, and don't come with the same restrictions as a construction loan. However, they also carry high interest rates relative to many other loan options.

Granny flats can be a great investment and offer you regular rental income. Getting your finance right will help make sure you get the best return on your investment.

Compare Personal Loans

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Home Loan Offers

Important Information*
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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