Get exclusive money-saving offers and guides
Straight to your inbox
By signing up, you agree to the Finder Privacy & Cookies Policy and Terms of Use, Disclaimer & Privacy Policy.
Home Loan Types
Guides & Help
Investment loans versus owner-occupier home loans
Your goals and property strategy will determine the type of home loan you need.
Updated
Fact checked
We’re committed to our readers and editorial independence. We don’t compare all products in the market and may receive compensation when we refer you to our partners, but this does not influence our opinions or reviews. Learn more about Finder .
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.
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)
More guides on Finder
-
How to start a small business from home
6 tips to start a successful home based business.
-
Brighte Personal Loan
Looking to renovate your home? Find out more about Brighte's personal loan for home improvements and ways in which it may be able to benefit you.
-
Endeavour Mutual Bank Special Fixed Home Loan
The Special Fixed Home Loan from Endeavour Mutual Bank is a fixed rate mortgage for owner-occupiers and investors.
-
Sydney Mutual Bank Special Fixed Home Loan
The Special Fixed Home Loan from Sydney Mutual Bank is a fixed rate mortgage for owner-occupiers and investors. Available with a 5% deposit.
-
Finder Cash Rate Survey: RBA holds rate at 0.25%, November cut expected
Despite mounting speculation about the possibility of another cut, the Reserve Bank of Australia (RBA) has today announced that it will hold the cash rate at 0.25% in October. See what the experts had to say as part of the Finder RBA Cash Rate Survey.
-
Hunter United Fixed Home Loan
The Fixed Home Loan from Hunter United is a fixed rate loan with options for home buyers and investors.
-
Home run: Mortgage approvals soar to pre-COVID-19 levels
Finder research shows not even coronavirus can dampen Australia’s love affair with property.
-
Home buyers with low deposits can save thousands in LMI premiums with these lenders
At least 3 lenders now offer big discounts on lenders mortgage insurance premiums that could save first home buyers thousands.
-
The home loan hedge: Aussies prefer split rate mortgages
Finder research shows that 1 in 5 Aussies would prefer to split their mortgage between fixed and variable if they were to refinance. Find out how a split loan can benefit you.
-
Borrowers are back: homebuyer lending rises 10% in July
This is the biggest month-on-month rise in owner-occupier lending we've ever seen.
Home Loan Offers
Important Information*
Ask an Expert