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Are you looking to buy a home? Then you're an owner-occupier and you're looking for an owner-occupier home loan. On this page, you can compare owner-occupier home loans, get a better idea of how they work and learn how these home loans differ from investment loans.
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An owner-occupier is someone who lives in a residential property as their principal place of residence. That is, you live in your own home. An owner-occupier is different from an investor, who purchases a property to use as an investment to create wealth, not as a place to live.
An owner-occupier home loan is a mortgage where the funds are used by the borrower to purchase a home to live in. This is distinct from an investment loan, which is used by an investor to fund the purchase of an investment property.
The Australian Tax Office considers a property to be your main residence if it meets certain criteria:
For taxation purposes, the ATO also considers other factors, such as whether the home has been used to produce income that can be taxed. If your property is your principal place of residence, you can claim an exemption from capital gains tax (CGT) when selling your home.
Owner-occupier home loans are the most common type of home loan. The key difference between an owner-occupier home loan and other home loans (such as investment loans) is the loan's purpose. An owner-occupier home loan must be used for the purpose of purchasing a home to live in.
In terms of mortgage features and loan details, owner-occupier home loans, like other loans, have an interest rate and comparison rate, rate types, minimum and maximum loan amounts, various loan fees and maximum (and maximum insured) loan to value ratios.
But these specific details may look different on an owner-occupier loan when compared to an investment loan:
While owner-occupier loans look similar to investment loans and other products, the specific needs of the borrower may differ.
For example, an investor may care more about getting a loan with interest only repayments while an owner-occupier may care about getting a lower interest rate. A first home buyer with a small deposit saved may look for a loan with a high LVR and have their parents act as a guarantor to help them qualify for the home loan.
Of course, not every owner-occupier is a first home buyer. An owner-occupier can be selling their home and buying a new one. Or they may be refinancing to a new home loan in order to get a better deal or helpful mortgage features such as an offset account.
Interest only home loans make sense for some property investors because they can claim interest costs on tax (but not principal). Owner-occupiers can't do this and are generally better off with principal and interest repayments.
This is because repaying your loan principal means you are actually repaying your debt. Borrowers who opt for interest only repayments initially end up paying more interest in the end.
Why would owner-occupier borrowers choose interest only then? A major reason is to stay afloat when you're struggling with mortgage repayments. If you've just lost your job or your income is reduced for any reason, switching temporarily to interest only repayments can help you keep your mortgage going without missing repayments.
It's an option that can help you stay on top of your mortgage in the short term, but it will cost you more in the long run.
Owner-occupiers are treated quite differently from investors for tax purposes.
When you sell your own home, you don't need to pay capital gains tax (CGT). This is a tax charged on investors who sell a property at a profit. Owner-occupiers can claim the main residence exemption mentioned above.
Investors can get a 50% discount on capital gains tax if they have owned the property for more than 12 months.
But investors do have the advantage of being able to claim tax deductions on expenses related to owning and maintaining an investment property. This includes the interest charged on a home loan.
Owner-occupiers can't claim these maintenance or interest costs back on tax. However, if you run a home office or work from home, there are some items and expenses owner occupiers can claim.
If you convert your home to an investment property, you will need to switch your owner-occupier home loan to a new investment loan. Depending on your lender's policies, you can either apply for a new investment loan or make a variation to your current loan and convert it to an investment loan. Your lender may have a variation form to complete or you may have to call and speak to a lending specialist.
You can also refinance to a new loan with a new lender if you think there's a better deal available. Just be sure to compare investment loan rates and look at exit and switching fees.
Speaking to a mortgage broker is also a good idea, as they can present you with multiple options and help you determine the optimal way to structure your current or new mortgages.
When turning your home into an investment property, the ATO recommends you keep records of details related to the property and the income you generate from the property, such as the following:
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