Investment Loan Rates
Every investor needs a competitive investment loan rate and a mortgage type that suits their strategy. Here's how you get one.
Updated . What changed?
Whether you're just starting out as a property investor or you're a landlord looking for a better mortgage, this guide will help you compare investment loan rates and find one that suits your wealth strategy.
Compare loans in the table or skip ahead to our in-depth guide to getting a good investment mortgage.
UBank Home Loan Offer
Apply for the UBank UHomeLoan Variable Rate - Discounted Offer for Investor P&I and get a low variable interest rate, plus no application and ongoing fees.
- Interest rate of 2.89% p.a.
- Comparison rate of 2.89% p.a.
- Application fee of $0
- Maximum LVR: 80%
- Minimum borrowing: $100,000
Compare investor loan rates from 2.29%
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.
The Adviser’s number 1 placed mortgage broker 8 years running (2013-2020)
What is an investment mortgage?
An investment loan lets you borrow money to buy a property to use as an investment. You lease the property to a tenant and receive rent. Hopefully the property's value rises over time, meaning you can make a capital gain as well.
These loans have all the same features as other mortgages, but investment loans tend to have higher interest rates and stricter eligibility standards.
The basics of investment loans explained
Let's take a look at different types of investment loans and how they work.
Investment loan rate types
Investment loan rates can be:
- Variable. Investment mortgages can have variable rates that can change at any time. These loans typically have more features and flexibility than fixed rate loans. They're usually lower rates too, but not always.
- Fixed. Investors also have the option to lock their repayments in place with a fixed rate investment loan. Knowing exactly how much your repayments will be each month is very useful. But be aware than fixed rates are less flexible and harder to refinance.
- Split rate. Most lenders will let borrowers split their loan into fixed and variable portions so they can enjoy some of the benefits of both types.
Investment loan repayment types
Beyond the rate type, you also need to choose a repayment type. You have two choices here: principal-and-interest or interest-only. Note that with both types you can choose variable or fixed rates:
- Principal-and-interest repayments. With these loans, you repay the money you've borrowed (the loan principal) and the interest together. This is the safer option for many borrowers because with every repayment your debt reduces and your equity grows.
- Interest-only repayments. Many investors, however, opt for an investment loan with interest-only repayments. With these loans you only repay the interest at first, which makes for smaller repayments. Over time, this is more expensive because your debt takes longer to be paid off. However, interest on an investment loan is tax-deductible. Many lenders use interest-only investment loans to reduce their costs for a few years and then sell their property when prices rise. It can be a risky strategy but in the right market it can be a profitable one.
When considering repayment types, note that principal-and-interest rates are typically lower than interest-only rates.
Australian investment loan statistics at a glance
Here are some of the latest statistics on investment loan rates and loan values, based on Finder's own data and the Australian Bureau of Statistics. We update this information every month. Learn more about our lowest rate tracking methodology and see more home loan statistics here.
How do I compare investment loans?
All investors should consider the following when finding the right mortgage:
- Get a low rate. For any borrower, a lower interest rate means lower repayments. This makes your investment property less expensive.
- The fewer the fees, the better. Avoiding fees where possible can also make your loan cheaper.
- Loan type. You have to choose between a fixed or variable rate type and consider whether you want interest-only or principal-and-interest repayments.
- Features. Mortgage features like an offset account can be very helpful if you know how to take advantage of them. It all depends on your investment strategy.
What does an investment loan comparison rate mean?
In Australia, all home loans come with two rates: the interest rate and the comparison rate. The comparison rate is a legal requirement that factors in the cost of fees in addition to interest. All comparison rates are calculated on a hypothetical home loan and don't provide specific details about your own potential costs. While a comparison rate is helpful because it highlights the cost of fees, you're better off looking at the loan fees in detail for yourself.
Investment strategies and more
The type of investment loan you need depends heavily on your investment strategy. Some investors may prefer a simple "buy and hold" strategy of collecting rent, paying off the mortgage and hoping for a modest capital gain.
Some investors, confident of a boom in prices, may only hold their investment for a few years and try to sell again at a profit. This more daring strategy often involves making smaller interest-only payments (meaning you don't repay the loan itself until you sell).
And negative gearing is another factor that many investors take advantage of regardless of their loan type.
Investment tax deductions
Australian property investors can take advantage of tax deductions on their investment costs. This means your investment costs can end up shrinking your overall tax bill.
Investors can claim deductions such as:
- Interest payments
- Property insurance
- Repairs and maintenance
There's a lot more you can claim. Read our guide to tax and property investment for more help.
How do I apply for an investment home loan?
Lenders treat investment properties as higher risk purchases. This means it can be harder to get an investment loan approved.
Here are some tips for a successful investor loan application:
- Check your credit score. A quick check of your credit score is a good idea to make sure you don't have any debts or credit problems that could harm your application.
- Save a bigger deposit. Having a 20% deposit is an advantage when applying as an investor. You can find loans that will let you borrow more than 80%, but they're harder to get.
- Get all your paperwork together. Having a strong application supported by financial documentation is a must. Here's a checklist of what you need.
- Trim your spending. Lenders examine an applicant's spending very carefully. Cutting back on unnecessary purchases in the three months leading up to your application will boost your chances of approval.
- Choose your property carefully. Lenders use your property as security. And if the property you're buying looks like a bad investment they might reject your application. Buying a small unit in a postcode where there is an oversupply of such properties could be a red flag, for example. Talk to the lender before applying.
- Talk to a mortgage broker. A qualified broker can help you apply for a loan that you can actually get. They can help with the paperwork too.
How to get your investment mortgage approved according to the experts
"Assuming a lender will accept every property is a mistake," says buyer's advocate and property investment advisor Cate Bakos. "I've seen investors purchase properties with limited kitchen facilities in place only to be shocked when the property is rejected altogether by the lender."
"Buyers also need to be confident that they aren't paying too much. Conducting recent comparable sales analysis, and focusing on recently sold properties on similar land size, with similar layout, style and age in a similarly regarded street is crucial. If they can't identify properties to support the price they are prepared to pay, they need to anticipate that the lender's valuer may not be able to justify it either."
Are you ready to be an investor?
Property investment is risky. Rental income and capital gains are never guaranteed. Before taking the plunge, here are some of the potential risks and benefits you should think about.
- Costs. There are also many upfront costs for investors, including lenders mortgage insurance (LMI), stamp duty, building and pest inspections, conveyancing and legal charges. As the owner of the property, you'll also be responsible for covering ongoing costs such as repairs and maintenance.
- Managing tenants. Being a landlord means dealing with the tenants in the property. You can do it yourself or outsource this work to a real estate agent, but you will have to pay a commission.
- Selling takes time. Selling property can take a while. If you need your investment cash on short notice, then property might not be for you.
- Rental income. An investment property can increase your cash flow by providing you with a second income source through rental income. A well-located property could provide 3–5.5% rental yield.
- Capital gain. When it comes time to sell your property, you may benefit from making a capital gain if the value of your property has risen.
- Tax and depreciation benefits. You can deduct investment loan interest charges and other investment costs from your tax.
- Add value. Unlike shares, you can often add value to an investment through renovations.
More guides and information to help you make a better decision
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