Investment loans versus home loans

Investment loans and home loans for owner-occupiers are similar, but not identical, and choosing the wrong type of loan can cost you more in the long run.

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This article was fact-checked and reviewed by , a property investment specialist whose book, My four-year-old the property investor, has sold more than 100,000 copies. Content has been updated for 2021.

Investment loans and home loans for owner-occupiers (people living in their own home) have similar product features and details. But finding the right loan for each purpose is quite a different process.

The specific interest rates you pay and the way a bank or lender assesses your application will vary substantially, depending on whether you’re buying a property to live in or purchasing one as an investment. Regardless of the purpose of the loan, you can usually get a fixed rate or variable rate home loan, and you can choose to pay for a mortgage packed with features or a no-frills product.

A brief recent history of interest rates

After the GFC, the government used the term "unquestionably strong" when instructing Australian Prudential Regulation Authority (APRA), the body that regulates Australia's banks, to exercise their power to ensure our finance sector could ride through any future local or global disaster.

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Cam McLellan is a property investment specialist, the co-CEO of OpenCorp, and the bestselling author of "My four-year-old the property investor".

What we saw in 2013-2017 wasn't unusual, given the market cycle. Sydney's median house price rose 75%, and in 2014-2018 Melbourne's median house price rose 59%. What happened next was a test of APRA's power over the market. It showed it could pull its levers to ensure our property markets maintained safe, consistent growth.

By February 2017: APRA was alarmed that 60% of Sydney property purchases were interest-only investment loans. This meant 60% of properties in Australia's most expensive market, at the end of a major growth phase, were being bought by speculators trying to get rich quick. The banks had to slow this down. APRA realised that too many investors were trying to buy at the end of a market growth period (and were potentially about to lose money when a correction occurred). So, they put measures in place to protect investors from buying in an overheated market.

APRA brought the sledgehammer down on Sydney speculation. It introduced major restrictions on lending to investors, which caused a massive reduction in borrowers who qualified for lending, which led to a slowdown in demand for housing. Sydney and Melbourne median house prices reduced accordingly. This was an expected market correction after the high growth.

By October 2017: APRA had instructed banks to reduce their proportion of interest-only loans to 30% by 31 October. The banks had to move fast to accommodate this, so they introduced massive incentives for borrowers to move from interest-only to principal and interest loans.

The biggest "carrot" was an interest rate difference of around 1% per year between the two loan types. Savvy investors weren't put off by this. Interest is tax deductible, and the favourable cash flow of interest-only loans still made sense. But most Australians are taught to think about favourable lending products by interest rates only. APRA's move had the desired effect and almost every bank hit its October deadline.

By December 2018: With the 30% cap achieved, APRA knew its levers had worked. It removed the cap and the market started to loosen. Prices started to rise due to genuine pent-up demand, rather than speculation. APRA had done its job.

Now that the government and APRA are confident that they have the levers to use when required, they are confident that our financial industry is "unquestionably strong". This being the case, post-COVID, there will be further loosening on lending requirements, which will mean people will be able to access larger amounts of debt with more ease.

Interest rates from 2019 onwards

In the past, there was very little difference between owner-occupier and investor home loan interest rates. Lenders tended to treat both classes of borrowers as equal risk, but this is no longer the case. These days, there’s a significant gap between owner-occupier home loan rates and investor rates, though it's not as wide as it was during APRA's interference.

In the graph below you can view 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 30-60 basis point gap between investor and owner-occupier rates. A difference of 0.60% can have a massive impact on mortgage repayments. Here's an example:

Say you have a $500,000 home loan for 30 years at 3.0%:

  • Monthly repayment = $2,108
  • Total loan cost over 30 years = $758,887

But if the rate on that loan decreased to 2.4%, your repayments become much lower:

  • Monthly repayment = $1,941
  • Total loan cost over 30 years = $701,894
  • You'll end up paying $56,993 less

Is it harder to get an investment loan now?

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 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. Since APRA restrictions began loosening, more lenders started offering property investment home loans with LVRs up to 90% and sometimes even 95%.

In addition to changing LVRs, some lenders now require a more stringent examination of investors’ income and expenses. Others have different policies that can impact investors: for instance, bank A might take into consideration 100% of the rental income your rental property generates, but bank B only counts 80% of the rental income when assessing whether you can afford the loan.

What features should you look for in an investment loan?

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. However, what is reduced is the size of your monthly repayment.

For instance, if you had a $500,000 investor home loan with an interest rate of 3%, your principal and interest repayment of $2,108 would fall to just $1,250 if you chose an interest-only repayment. This is a massive $858 difference in your monthly repayments – over $10,000 per year.

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 that offer interest-only repayments do so for a pre-determined period of time, usually up to five years. At the end of this term, the home loan repayments would revert to principal and interest. This would mean a significant rise in the 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.

Consider the tax treatment of your loan

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

Which is the right loan for you?

The way you use your property will ultimately dictate the type of home loan you need. As a property investor, you may pay a higher interest rate or jump through a few more hoops to get your loan approved. However, with very competitive rates on offer and the favourable tax treatment given to property investors, putting your money in bricks and mortar can pay big dividends.

$
years
Name Product Interest Rate (p.a.) Comp. Rate (p.a.) Fees Monthly Payment

Nano Variable Home Loans P&IInvestment≥ 25% Deposit Refi Only

Nano Variable Home Loans
2.29%
2.29%
  • App: $0
  • Ongoing: $0 p.a.
$578
Investors can refinance this no-fee variable rate loan. You will need a 25% deposit. Fast online approval.

Athena Variable Home Loan P&IInvestment≥ 40% Deposit

Athena Variable Home  Loan
2.39%
2.39%
  • App: $0
  • Ongoing: $0 p.a.
$586
Investors with large 40% deposits or equity can get this low variable rate. A competitive option for investors looking to refinance.

UBank UHomeLoan Fixed P&IInvestment 1Y Fixed≥ 20% Deposit

UBank UHomeLoan Fixed
2.14%
2.54%
  • App: $0
  • Ongoing: $0 p.a.
$567
Investors can enjoy flexible repayments and an easy application process with this pioneering online lender.

St.George Fixed Rate Advantage Package P&IInvestment 2Y Fixed≥ 20% Deposit

St.George Fixed Rate Advantage Package
2.24%
3.89%
  • App: $0
  • Ongoing: $395 p.a.
$574
$3,000 refinance cashback.
Investors can lock in a competitive rate for two years with this package loan. You will need at least a 20% deposit. Refinancers borrowing $250,000 or more can get a $3,000 cashback (Apply by 30 September 2021. Terms and conditions apply). Refinancers Only.

Westpac Fixed Option Home Loan Premier Advantage Package P&IInvestment 2Y Fixed≥ 5% Deposit

Westpac Fixed Option Home Loan Premier Advantage Package
2.29%
3.97%
  • App: $0
  • Ongoing: $395 p.a.
$578
$3,000 refinance cashback
A competitive fixed rate loan for investors that allows you to make up to $30,000 in extra repayments. Principal and interest loans only. $3,000 cashback for eligible refinancers. Apply by 30 September 2021. Terms and conditions apply.

Bank of Melbourne Advantage Package Fixed Home Loan P&IInvestment 2Y Fixed≥ 20% Deposit

Bank of Melbourne Advantage Package Fixed Home Loan
2.24%
3.91%
  • App: $0
  • Ongoing: $395 p.a.
$574
$3,000 refinance cashback.
Lock in a low rate for two years with this competitive investment package loan. Refinancers borrowing $250,000 or more can get a $3,000 cashback (Apply by 30 September 2021. Terms and conditions apply). Refinancers Only.

loans.com.au Smart Booster Discount Investor Variable Home Loan P&IInvestment≥ 20% Deposit

loans.com.au Smart Booster Discount Investor Variable Home Loan
1.99%
2.71%
  • App: $0
  • Ongoing: $0 p.a.
$555
If you have an owner occupier loan with loans.com.au you can also get this very low rate variable mortgage for your investment property. Principal and interest repayments. Add an offset account for an additional 0.10% on your interest rate. Get your loan processed fast and settle within 30 days.

Nano Variable Home Loans IOInvestment≥ 25% Deposit Refi Only

Nano Variable Home Loans
2.59%
2.40%
  • App: $0
  • Ongoing: $0 p.a.
$601
This variable investment loan has interest-only repayments and is for refinancers only. Fast online approval. Requires a 25% deposit.

Well Home Loans Balanced Fixed Home Loan P&IInvestment 3Y Fixed≥ 10% Deposit

Well Home Loans Balanced Fixed Home Loan
2.34%
2.36%
  • App: $250
  • Ongoing: $0 p.a.
$582
A competitive 3 year investor rate with principal and interest repayments. Optional offset account with a $10 monthly fee. Not available for construction purposes.

homeloans.com.au Low Rate Home Loan with Offset IOInvestment≥ 40% Deposit

homeloans.com.au Low Rate Home Loan with Offset
2.59%
2.42%
  • App: $0
  • Ongoing: $0 p.a.
$601
This competitive variable rate loan is for investors who want interest-only repayments. You will need a 40% deposit.

HSBC Home Value Loan P&IInvestment≥ 30% Deposit

HSBC Home Value Loan
2.44%
2.45%
  • App: $0
  • Ongoing: $0 p.a.
$590
$3,288 refinance cashback offer
This variable rate loan is available for property investors with 30% deposits. This loan has very few fees. Eligible refinancers borrowing $250,000 or more can get a $3,288 cashback. Terms and conditions apply.

UBank UHomeLoan Variable Rate P&IInvestment≥ 20% Deposit

UBank UHomeLoan Variable Rate
2.55%
2.55%
  • App: $0
  • Ongoing: $0 p.a.
$598
Get a discounted, low-fee investor loan from a convenient online lender. 20% deposit required.

Suncorp Home Package Plus Fixed P&IInvestment 3Y Fixed≥ 20% Deposit

Suncorp Home Package Plus Fixed
2.28%
3.15%
  • App: $0
  • Ongoing: $0 p.a.
$577
$3,000 refinance cash bonus
Borrowers with 20% deposits can lock in a low fixed rate loan for three years. Eligible new borrowers can get the annual package fee reimbursed for the life of the loan. $3,000 refinance cash bonus for eligible borrowers. Other terms, conditions and eligibility criteria apply.

homeloans.com.au Low Rate Home Loan with Offset P&IInvestment≥ 20% Deposit

homeloans.com.au Low Rate Home Loan with Offset
2.39%
2.41%
  • App: $0
  • Ongoing: $0 p.a.
$586
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.

Athena Variable Home Loan P&IInvestment≥ 20% Deposit

Athena Variable Home  Loan
2.59%
2.48%
  • App: $0
  • Ongoing: $0 p.a.
$601
A competitive investor variable rate that falls as you build equity.

UBank UHomeLoan Fixed IOInvestment 3Y Fixed≥ 20% Deposit

UBank UHomeLoan Fixed
2.24%
2.50%
  • App: $0
  • Ongoing: $0 p.a.
$574
Pay no ongoing fees on this investment loan fixed for 3 years.

Well Home Loans Balanced Variable P&IInvestment≥ 20% Deposit

Well Home Loans Balanced Variable
2.32%
2.35%
  • App: $250
  • Ongoing: $0 p.a.
$580
If you're an investor with a 20% deposit saved you can get this low rate mortgage. Not available for construction.

UBank UHomeLoan Fixed P&IInvestment 5Y Fixed≥ 20% Deposit

UBank UHomeLoan Fixed
2.54%
2.57%
  • App: $0
  • Ongoing: $0 p.a.
$597
Lock in a 5 year fixed rate on your investment loan and pay no ongoing fees.

Athena Variable Home Loan P&IInvestment≥ 30% Deposit

Athena Variable Home  Loan
2.49%
2.43%
  • App: $0
  • Ongoing: $0 p.a.
$594
Athena's refinance offer for investors and owner occupiers.

UBank UHomeLoan Variable Rate IOInvestment≥ 20% Deposit

UBank UHomeLoan Variable Rate
2.60%
2.58%
  • App: $0
  • Ongoing: $0 p.a.
$602
Pay interest only repayments with this special offer for investors.

IMB Fixed Rate Home Loan P&IInvestment 3Y Fixed≥ 10% Deposit

IMB Fixed Rate Home Loan
2.35%
3.33%
  • App: $449
  • Ongoing: $6 per month
$583
NSW and ACT customers only. A 3 years fixed rate investor which allows extra repayments to be made.

Well Home Loans Balanced Variable P&IInvestment≥ 10% Deposit

Well Home Loans Balanced Variable
2.87%
2.90%
  • App: $250
  • Ongoing: $0 p.a.
$624
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.

UBank UHomeLoan Fixed IOInvestment 1Y Fixed≥ 20% Deposit

UBank UHomeLoan Fixed
2.29%
2.55%
  • App: $0
  • Ongoing: $0 p.a.
$578
Investors can enjoy flexible repayments and an easy application process with this pioneering online lender.

Athena Variable Home Loan IOInvestment≥ 30% Deposit

Athena Variable Home  Loan
2.69%
2.52%
  • App: $0
  • Ongoing: $0 p.a.
$609
Investors with 30% deposits can get this fee-free variable rate loan. This loan has interest-only repayments.

homeloans.com.au Low Rate Home Loan with Offset IOInvestment≥ 20% Deposit

homeloans.com.au Low Rate Home Loan with Offset
2.69%
2.52%
  • App: $0
  • Ongoing: $0 p.a.
$609
A competitive rate with no application or ongoing fee. This loan is not available for construction.
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