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Investment loans versus owner-occupier home loans

Your goals and property strategy will determine the type of home loan you need.

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When you’re comparing home loans, it’s easy to notice some distinctions between the products on offer, such as fixed rate versus variable rate or home loans packed with features versus no-frills products. But one of the most important distinctions is how you plan to use your home loan.

Home loans will vary substantially depending on whether you’re buying a property to live in or purchasing one as an investment.

Different rates

In the past, there was very little difference between owner-occupier and investor home loan rates. Lenders tended to treat both classes of borrowers as equal risk. This is no longer the case.

In 2014, the Australian Prudential Regulation Authority (APRA), the body that regulates Australia’s banks, announced it would set a 10% cap on new investor lending. This meant banks had to reduce the proportion of new home loan business going to investors to 10% of their total home loans.

As a result of this change, lenders have tried to stem the tide of investment property borrowing, largely by lifting rates on property investment home loans. These days, there’s a significant gap between owner-occupier home loan rates and investor rates.

In the graph below you can see the lowest rates for fixed and variable investor and owner-occupier home loans in our database.

You can see from this data that there is usually a 30-40 basis point gap between investor and owner-occupier rates. A 30 basis point difference can really alter mortgage repayments. Here's an example.

Example

Say you have a $500,000 home loan for 30 years at 3.30%:

  • Monthly repayment = $2,189
  • Total loan cost over 30 years = $788,319

But if the rate on that loan decreased to 3.00% things would look very different:

  • Monthly repayment = $2,108
  • Total loan cost over 30 years = $758,887
  • You'll end up paying $29,432 less

This being said, there are still attractive rates on offer for property investors, and some of the other features of investment home loans can help reduce the impact of higher rates.

Different criteria

Because of APRA’s clampdown on investment lending, many lenders have changed their criteria for property investors. This means the loans can be slightly more difficult to get than in the past.

Some lenders have changed the maximum loan-to-value ratio, or LVR, available to investors. LVR is the size of your home loan compared to the value of the property you’re buying. For instance, if you buy a property worth $500,000 with a home loan of $450,000, your LVR would be 90%.

Many lenders have reduced the maximum LVR they offer to investors to as low as 80%. This means you would need a 20% deposit to purchase a property. However, there are still lenders that offer property investment home loans with LVRs up to 95%.

In addition to changing LVRs, some lenders now require a more stringent examination of investors’ income and expenses. Some have wound back incentives available to property investors. And a few lenders have ceased lending to property investors altogether.

Different features

One of the main features commonly available to investors that is now rarely offered to owner-occupiers is interest-only repayments.

Repayments on a home loan are typically either principal and interest or interest-only. A principal and interest repayment means that a portion of every repayment is devoted to the interest while another portion is devoted toward the principal, or the original amount borrowed.

An interest-only repayment means that only the interest charges on the home loan are being repaid, so the amount you owe isn’t reduced. What is reduced, however, is the size of your monthly repayment.

For instance, if you had the 3.89% $500,000 investor home loan given in the example above, your principal and interest repayment of $2,355.48 would fall to $1,620.83 if you chose an interest-only repayment. This is a massive $734.65 difference in your monthly repayments.

Compare interest-only home loans

While interest-only repayments used to be commonly available to both investors and owner-occupiers, fewer lenders are willing to offer these repayment terms. Investors can access interest-only repayments if they’re able to provide justification for the reason they’re choosing these repayments instead of principal and interest repayments. However, it’s rare these days for owner-occupiers to be able to justify interest-only repayments.

This is because interest-only repayments can put borrowers in a risky situation. Lenders who offer interest-only repayments do so for a pre-determined period of time, usually up to five years. At the end of this term, your home loan repayments would revert to principal and interest. This would mean a significant rise in your monthly repayments. Meanwhile, you would not have actually reduced the amount you owe.

So why would investors choose interest-only repayments? The answer is because of the different way investment home loans are treated for tax purposes.

Different tax treatment

Because investors are using their property as an income-producing asset, it means any income they see from their investment is taxed by the Australian Taxation Office (ATO). It also means they can deduct any expenses incurred while generating that income.

Because of this, investment property home loans are treated differently by the ATO than owner-occupier home loans. For tax purposes, the interest on an investment property home loan is seen as a business expense. Therefore, all interest payments can be deducted from the property owner’s income at tax time.

Interest for an owner-occupier home loan, on the other hand, is not deductible.

This tax treatment is why some property investors choose an interest-only home loan. Paying only the interest maximises their tax deductible debt while minimising their outgoings.

Maximising your tax return as an investor

Summing it up

The way you use your property will ultimately dictate the type of home loan you need. If you’re a property investor, you may pay a bit more and need to save a bigger deposit in order to qualify for a home loan. However, with good rates still on offer and the favourable tax treatment given to property investors, putting your money in bricks and mortar can pay big dividends.

Data indicated here is updated regularly
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Loan purpose
Offset account
Loan type
Repayment type
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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
2.89%
2.89%
$0
$0 p.a.
80%
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
2.79%
2.74%
$0
$0 p.a.
80%
A competitive investor variable rate that falls as you build equity.
homeloans.com.au Low Rate Home Loan with Offset - LVR 60% to 80% (Investment, P&I)
2.54%
2.56%
$0
$0 p.a.
80%
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)
2.49%
4.12%
$595
$0 p.a.
90%
$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)
2.29%
2.84%
$395
$0 p.a.
80%
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
2.74%
2.71%
$0
$0 p.a.
70%
Athena's refinance offer for investors and owner occupiers.
Well Home Loans Balanced Fixed Home Loan - 3 Year (Investor, P&I)
2.44%
2.76%
$250
$0 p.a.
90%
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%
3.09%
3.29%
$599
$10 monthly ($120 p.a.)
80%
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
2.69%
2.69%
$0
$0 p.a.
60%
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)
2.82%
2.85%
$250
$0 p.a.
80%
If you're an investor with a 20% deposit saved you can get this low rate mortgage. Not available for construction.
IMB Fixed Rate Home Loan - 3 Years Fixed (LVR ≤90% Investor, P&I, NSW and ACT borrowers only)
2.64%
3.56%
$449
$6 monthly ($72 p.a.)
90%
NSW and ACT customers only. A 3 years fixed rate investor which allows extra repayments to be made.
Well Home Loans Balanced Variable - LVR 90% (Investor, P&I)
2.82%
2.85%
$250
$0 p.a.
90%
Competitive variable investor mortgage to fund your property portfolio. You can add a 100% offset account for just $10 a month. Not available for construction purposes.
Macquarie Bank Basic Home Loan - LVR up to 70% (Investor, P&I)
2.79%
2.79%
$0
$0 p.a.
70%
Investors with a 30% deposit can get this low rate loan to fund their property portfolio. Take advantage of split and redraw facilities.
UBank UHomeLoan - 3 Year Fixed Rate (Investor, P&I)
2.29%
2.74%
$395
$0 p.a.
80%
Pay no ongoing fees on this investment loan fixed for 3 years.
ING Orange Advantage Loan - $150k to $500k (LVR ≤ 80% Investor, P&I)
2.74%
3.08%
$0
$299 p.a.
80%
Investors can enjoy a 100% offset account, a redraw facility and flexible repayments.
UBank UHomeLoan Variable Rate - Investor Extra Offer Investor Interest Only
3.29%
3.16%
$0
$0 p.a.
80%
Pay interest only repayments with this special offer for investors.
Athena Variable Home Loan - Investor, IO
2.99%
2.81%
$0
$0 p.a.
80%
A competitive interest-only investor rate with no application or ongoing fees. Requires a 20% deposit.
UBank UHomeLoan - 1 Year Fixed Rate (Investor, IO)
2.44%
2.85%
$395
$0 p.a.
80%
Investors can enjoy flexible repayments and an easy application process with this pioneering online lender.
Pepper Money Essential Prime Alt Doc Home Loan - LVR up to 55%
3.85%
4.04%
$599
$10 monthly ($120 p.a.)
55%
A competitive rate home loan with an offset facility for self-employed borrowers.
UBank UHomeLoan - 5 Year Fixed Rate (Investor, P&I)
2.74%
2.83%
$395
$0 p.a.
80%
Lock in a 5 year fixed rate on your investment loan and pay no ongoing fees.
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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.

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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.

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

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

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