Investment Home Loan Rates: A Guide (2024)

Aside from the increased rates, investment loans are nearly identical to owner-occupier home loans.

The most noteworthy incentive for utilising an investment loan is the tax benefits. Unlike a regular mortgage, investment home loans can be eligible for capital gains discounts and offsets, negative gearing deductions, and maintenance deductions for tenanted properties. Applying these discounts can decrease your taxable income and save you money on your investment.

Investment loans also offer you several features that can positively contribute to the success of your loan. The most popular investment home loan features include:

• Offset accounts;
• Fixed interest rates;
• Extra repayments;
• Interest-only repayments;
• Repayment holidays; and
• Redraw facilities.

These features are designed to help you save money and are applicable to most mortgage types. Offset accounts, fixed rates, and extra repayments can also provide you with the opportunity to reduce your loan term.

Related: Fixed Rate Home Loans Explained

The increased risk that investors pose to lenders is the primary reason for the more expensive investment loan rates and fees. Whether you’re planning on having tenants in your investment or ‘flipping’ it for a profit, there are several factors, both within your control and beyond it, that might impact your ability to repay your loan.

An example of a factor partially within your control, is your investment history. Many investors have a diversified portfolio, which—while positive—means you might have simultaneous investments.

Should one of these investments go wrong there is space for a domino effect on the rest of your assets; leaving you unable to make the repayments on your investment property. Alternatively, poor market conditions, difficulties finding inhabitants for your rental, or issues with equity are potential problems beyond your control that your lender must also account for.

Given this room for error, lenders increase the fees and rates on their investment loans to cover themselves, should you be unable to make your repayments.

One feature of an investment loan that often appeals to property investors, is the interest-only option. Aiding in relieving financial pressure, keeping monthly costs down, and simplifying budgets, an interest-only loan allows borrowers to only pay their loan interest for a short period.

This can offer you a break from your regular principal and interest payments and is useful should you need to prioritise a different debt. Some investors who buy to flip often prefer interest-only loans so that they pay off the interest prior to flipping them, which lays the groundwork for capital gains further down the track.

Another reason more experienced investors will utilise an interest-only loan is to capitalise on tax claims. For example, if your property produces a rental yield of $20,000, and you pay $25,000 in cumulative interest repayments that financial year, your property becomes negatively geared. This would then allow you to claim the difference between your rental income and your interest paid.

Keep in mind, that the interest rate may be higher on an interest-only loan, than on a principal and interest loan. It is also imperative to note that the principal will not decrease during this period, therefore you may end up paying more on your loan in the long term.

Much like with an owner-occupier loan, the process to obtaining an investment loan follows a similar process. However, lenders tend to be pickier considering the increased risk; therefore, the eligibility criteria for qualification does look slightly different. Here are a list of things a lender might look for in an investment loan applicant:

• Borrowing power—what expenses do you have? How does your debt-to-income ratio look?
• Investment history—have you handled previous investments well?
• Credit score—do you have any defaults or unpaid debts?
• Assets and liabilities—what assets do you currently own? Are you already in some type of debt, such as HECs?
• Purpose of the investment property—will you have tenants? Or are you flipping?
• Running costs—will the property have maintenance fees, management fees, or council rates?

Almost all the points on this list are evaluated regardless of your loan type. However, debt-to-income ratio, running costs, and the purpose of your investment property are most relevant to an investment loan. Understanding and meeting the criteria behind these investment-specific points may strengthen your investment loan application.

Given that Australian property investors often pay higher rates on their investment loans, it is essential that you evaluate all your options to find the best fit for your circ*mstances. Here is a short list of some of the investment loans on the market, and the interest rates they currently offer:

These investment home loan rates are based on data from Rate City and Mozo, sourced in December 2022, based on a loan amount of $500,000 and a minimum deposit of 20%.

Please note that it is not Forbes Advisors’ place to decide which loan is the ‘best’; this is merely an analysis of current interest rates.

Fixed and variable rates apply to investment home loans, just as they would to any other loan type. A fixed interest rate loan allows you to lock in your interest rate for up to five years. This is an excellent option when rates are low. Fixed rates also allow investors to simplify their budgeting thanks to more stable repayments. However, if your lender lowers their interest rates, you won’t be able to take advantage of this.

Variable interest rates, on the other hand, are subject to change with the market. This means that your rate can increase or decrease depending on the state of the economy. Whilst a variable investment rate does mean your repayments could increase if rates rise, variable rate loans typically come with more flexible features to account for this.

The decision of which loan type you choose, should be based on your circ*mstances and your goals for the property. If keeping a stable budget is important to you, fixed may be a better option. If you want a more flexible loan, you may be better off opting for variable. Speak with your lender or a mortgage broker if you are unsure which option is best for your purposes.