Whether you're just starting out as a property investor or you're an established investor looking to switch to a better mortgage, this guide will help you compare competitive rates and find a loan that suits your wealth strategy.
We've also got some helpful tips and strategies every investor needs to know.
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What is an investment mortgage?
An investment loan lets you borrow money to buy a property for investment. In other words, it's a home loan but not for the house you live in. As an investor, you usually lease the property to a tenant and receive rent. Hopefully the property's value rises over time, meaning you can make a capital gain.
These loans have all the same features as other mortgages, but investment loans tend to have higher interest rates and stricter eligibility standards.
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 find the right loan for my investment?
All would-be investors should consider the following when finding the right mortgage:
Low rate. For any borrower, a lower investment loan interest rate means lower repayments. As an investor, interest charges are tax deductible, which is a big plus.
The fewer the fees, the better. Avoiding fees where possible can also make your loan cheaper.
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.
Should I really be investing in property right now?
As the coronavirus pandemic continues to wreak economic havoc many people are justifiably worried about investing (or even having a stable income). It's understandable, and likely, that less people will invest in property while we're in the middle of a pandemic.
Ultimately everyone needs to make their own decision, but here are some questions to ask yourself:
Are you currently a property investor? If so, definitely consider switching to a lower interest rate loan.
Are you in this for the long run? Even if property prices fall to some extent, if you're invested for the long term then you have less to worry about.
Have you done your research and are making a well-informed purchasing decision? The well-informed investor can make a wise choice and buy a solid property in a good location, setting them up for the long term.
Are you confident you can handle investment mortgage repayments if you're in financial stress? This is something every investor needs to think about. How likely are you to be made redundant? How much do you have saved up? Prepare for the worst, because the coronavirus pandemic shows that unexpected shocks can and do happen.
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.
Are eligibility requirements stricter for investors?
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
Richard Whitten is a senior writer at Finder covering home loans and property. He helps everyone understand the ins and outs of mortgages so they can make smarter property decisions. Richard trained as a high school English teacher but found it easier to manage personal finances than a classroom full of kids. Before joining Finder, he edited textbooks and taught English to office workers in South Korea. Richard has a Bachelor of Education and a Graduate Certificate in Communication.
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