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Investment loans almost halved in cost since COVID-19

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While COVID-19 has delivered a number of economic challenges, there is one area where Australians have benefitted – with investment loans now cheaper than they've ever been.

At the beginning of 2020, the average investment loan in Australia was inching towards 4%.

Since the pandemic, an investment loan rate can be secured for as low as 2.29%, making it more affordable than ever to own an investment property.

Most landlords began this year with an interest rate on their investment loan that sat at around 3.7% to 3.9%. Right now, it's possible for borrowers to secure a variable rate investment loan with an interest rate of between 2.5% and 2.7%.

Fixed rate loans are also available from just 2.29%, such as this one-year fixed rate mortgage product from UBank.

This represents a dramatic reduction in interest rates, and comes after a prolonged period where investors were paying more for their mortgages than owner occupiers, said David Smith, chief customer officer at Aussie Home Loans.

"The last year has been nothing short of extraordinary – we haven't seen such rapid rate falls since the GFC," Smith said.

"Rates are much lower in absolute terms than they have ever been. Aussie has been in the market for almost 30 years, and we've never seen the rates this low with some rates breaking the 2% barrier. As for any borrower, slow [property] price growth combined with low rates is positive news for investors."

For those who are considering buying an investment property, the sudden and significant interest rate drops in 2020 have delivered a unique opportunity to get into the market.

Not only are interest rates lower, but your individual borrowing power is also much higher as a result.

For instance, a single borrower who earns $75,000 per year, has no dependants and a total credit limit of $5,000 may have been able to borrow around $579,000 when interest rates were higher. The monthly repayment would be around $2,730.

With an interest rate of 2.5%, that same applicant may be able to borrow almost $100,000 more – and the monthly repayments are actually lower, at $2,675.

The opportunities to save money on your mortgage abound, with Smith confirming there are "potential savings to be made through refinancing, and for aspiring investors there could be great potential".

Interest rates are unlikely to increase any time soon, with many economists and industry insiders predicting a rate cut on Melbourne Cup Day, when the Reserve Bank of Australia next meets to make a cash rate decision.

If it cuts rates, as widely tipped, it's expected that banks and lenders will pass the full interest rate reduction on to customers – making investment loans even cheaper.

This low rate environment is expected to stick around for quite some time, meaning landlords have an ideal opportunity right now to shop around for a better deal on their mortgage, Smith added.

"The RBA has made it clear that it will not lift rates until it is confident inflation is back within the 2-3 per cent target band, so from what we have seen so far, we expect these low rates to stick around for the next few years," Smith said.

Looking for an investment home loan? Compare the latest investment loan rates or find out what offers are available if you refinance.

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