Compare Investment Home Loans - Australia

For many property investors, choosing a suitable investment home loan is an important and necessary step in buying an investment property. Regardless of your experience with investing in the property market, with so many options out there, choosing a suitable investment home loan for your needs can present a challenge for some.

Comparing investor home loans can be time consuming but can help, if you know where to look. That’s why we put together this guide. It’ll give you answers to some of your key questions about investment home loans and could help you compare a range of investment home loan options.

As with any investment decision, it’s a good idea to do your own thorough research, and seek professional advice based on your unique circumstances.

An investment home loan is a type of mortgage specifically designed for property investors. Owner-occupier home loans are only offered to people who will be owning and occupying the real estate they’re buying, while you can take out an investment loan to buy a property even if you’re not going to live there and plan to rent it out. In some cases this may also be for a holiday home or holiday rental that you’re not going to live in full time.

Investment home loans work just like other home loans. You submit an application. The lender reviews your situation. It issues a loan offer, which includes the loan amount, deposit, loan term, all the loan fees and charges and the full set of terms and conditions. And then you sign the contract and the lender will transfer the full loan balance on settlement. The key difference is that investment loans are for properties purchased for investment, such as one you plan to rent out (or at least not live in full time, like a holiday home rental).

Just be aware that investor home loans generally have higher interest rates than loans for owner occupiers. This is usually the case regardless of whether the loans have variable or fixed interest rates.

Investing in real estate has been a popular way to expand an investment portfolio in Australia, which for many investors it has proven to be a profitable venture. An investment home loan can help by providing finance to help purchase an investment property in Australia.

While the Australian property market may experience fluctuations, and has experienced some more volatility recently, it generally has a steady long-term growth trajectory. This of course can heavily depend on what you buy, where it is located and the economic environment.

If you’re considering investing in real estate, but like many investors and homeowners, don’t have the necessary capital to purchase a property outright, an investment home loan could be a solution to help build a property investment portfolio.

Depending on your financial situation, an investment home loan may enable you to use equity in your primary residence to help secure the loan and improve your borrowing power.

For some investors, there may also be additional tax benefits to investing in real estate because interest payments on the loan may be tax-deductible (if the home is earning a taxable income and depending on the circumstances). Speaking with an accountant could help you find out about any possible tax benefits, or pitfalls, and how negative gearing could apply to you.

Property investment does not come risk free, and before you decide to invest in property you should consider speaking with a financial advisor about your situation and needs.

One of the keys to help choose a fantastic investor home loan is to look past the interest rate to the comparison rate, and to then compare those with the features of the loan. The lender with the lowest interest rate may offer fewer features or charge higher fees.

As an example, if your rental income will be seasonal, you might decide to keep ‘savings’ in an offset account. An offset account can be used to help reduce the amount of money used to calculate your interest repayments and also leave you with money you can use to make loan repayments or other purchases when you don’t have any rental income. Using an account with those features might reduce the overall cost of your loan when compared with a low-interest investment loan that doesn’t offer an offset account, if you still have to put money aside to cover no-rent periods.

As another example, if you’re planning on paying off your investment loan as soon as possible, you might spend as much of your income as possible on repayments. But that may leave you without sufficient cash when you inevitably have to pay for an expensive bout of property maintenance. In such a circumstance, it might be worth it to get a loan with a redraw facility rather than a lower-interest “no frills” loan and keeping aside some money in an emergency fund.

To look at an entirely different scenario, let’s say you plan to buy an investment property, renovate it and then “flip it” for a profit as quickly as possible. The lowest possible interest rate may not make for the best loan if you’re not planning on paying interest for very long. In this situation, you may decide it’s more important to avoid break fees on a fixed interest rate loan or to include an offset account to help decrease the interest payable.

Some investors may choose an interest only loan to help reduce the repayment amounts. However it’s important to factor in the increased costs over the life of the loan when reviewing interest only options.

And remember, unless you refinance, an interest only period will generally not be for the life of the loan. You’ll usually have to choose an interest-only period of somewhere between one and five years.

The amount you can borrow with an investment home loan will vary depending on several factors, including your financial situation and the lender's lending criteria. Put simply, the amount you can borrow is calculated based on your borrowing capacity and the property's value.

Lenders will consider your income, expenses, credit history, and assets, and use this information to determine your ability to make loan repayments and manage the loan's associated costs.

The property's value and the size of your deposit also plays a crucial role in determining how much you can borrow with an investment home loan. Lenders will typically lend up to 80 per cent of the property's value and, in some cases, they may lend more. However, borrowing more than 80 per cent of the property's value may result in higher interest rates or added costs, such as lenders mortgage insurance.

The type of property you choose to purchase can also impact the amount you can borrow, and the size of deposit required for approval. For example, lenders may have different lending criteria for apartments, houses, or commercial real estate, depending on their location, size, value and potential returns.

The answer to this question depends on a range of factors, including the type of property you're interested in, the lender you choose, and your financial situation.

The minimum deposit required for an investment property loan is often higher than that required for an owner-occupier loan. This is because lenders generally rate an investment loan as higher risk, due to the potential for rental income to fluctuate or stop altogether. In Australia, you can expect to be asked for a minimum deposit of 20 per cent of the property's value for an investment home loan, however this can fluctuate up or down depending on the circumstances.

Some lenders may require a higher deposit, particularly if the property is located in a high-risk area, or if you have a less-than-perfect credit history. On the other hand, some lenders may be willing to accept a smaller deposit if you have a strong financial position and can demonstrate a reliable income stream.

In addition to the deposit, there are other upfront costs you'll need to factor in, including stamp duty, conveyancing fees, and building and pest inspection costs. These can add up to several thousand dollars, so it's important to consider them when working out your budget.

When it comes to investment home loans understanding how to calculate the interest costs can help you to understand your payment obligations, and make the most out of your investment.

To calculate the interest charges on your investment home loan, you will need to consider the following factors:

• Loan amount. The amount of the loan is the initial amount you borrowed to purchase the property. This is also known as the principal.
• Interest rate. This is the rate at which the lender charges you interest on the loan. It can be either fixed or variable.
• Loan term. The loan term is the length of time you have to repay the loan. It is usually 25–30 years.
• Repayment frequency. This is how often you make repayments on the loan. It can be weekly, fortnightly or monthly.

Once you have these factors, you can use an online calculator like the one found at MoneySmart to help estimate out the interest charges on your investment home loan.

While there is no one size fits all “best” investment home loan, there are some steps which may help you find a suitable option. Once you’re sure you want to apply for an investor home loan, you may decide to compare a range of home loan options. By comparing a range of investor loans, you can be more confident you’ll have information you need to help choose an investment home loan that’s suitable for you.

Our main home loan comparison page includes a guide to comparing home loans. You can update it specifically for investment loans, by adding these questions into the mix:

• What do you plan to do with the investment property you’re borrowing for? This could affect which repayment type you pick. For example, if you’re planning to offer the property for rent to holidaymakers (e.g. on AirBnB), you might appreciate having an offset account where you can save money to reduce your interest expenses while the property is occupied but then still have the money available for when the property is vacant, and you don’t have any rent coming in to help pay the interest.
• Do you want the flexibility to make additional repayments but redraw them if you have unanticipated expenses? This may be useful for things like repairs and maintenance.

The time it takes to get home loan approval for an investment home loan can vary depending on several factors, including the lender you choose, the loan amount, and your financial situation.

When you apply for a home loan, your lender will assess your financial situation, including your credit score, employment status, and income. The more complex your financial situation, the longer it can take for your loan to be approved.

One factor that can affect the time it takes to be approved is the lender you choose. Some lenders have more stringent lending policies than others, which can result in longer waiting times. If the pace of approval is important to you, you may want to research different lenders and their lending policies before choosing one.

Another factor that can affect the approval time is the loan amount. If you're applying for a large loan with a high loan to value ratio, it may take longer for your lender to process your application.

To speed up the home loan application and approval process, you can take steps to improve your financial situation, such as paying off any debts you may have, and maintaining a good credit score. You can also make sure that you have all the necessary documentation ready when you apply for your loan.

You can refinance an investment home loan in Australia. To do this, the new lender will assess your application based on your income, expenses, credit history, and the value of your property.

When refinancing an investment home loan, you have a few options. You can refinance by switching to a new lender, or negotiating a better deal with your current lender. You might like to shop around and compare different lenders and loan products to see if you can find a better deal.

Some factors to consider when refinancing an investment home loan include:

• Interest rates. Look for a lower interest rate to reduce your repayments and save money on interest over the life of your loan.
• Fees. Consider any upfront or ongoing fees associated with the loan, such as application fees, valuation fees, annual fees and break fees.
• Loan features. Look for loan features that suit your needs, such as offset accounts, redraw facilities, and flexible repayment options.
• Lending criteria. Make sure you meet the lender's lending criteria, such as income and credit requirements, and have sufficient equity in your property.
• Repayment strategy. Consider your long-term repayment strategy and how refinancing will impact your investment goals.

To ensure you understand the repercussions of refinancing, you should seek advice from a qualified tax or finance professional before making a decision.

When you apply for a loan, a lender will usually conduct a credit check to determine whether you are a good risk to lend money to, highlighting the importance of maintaining a good credit history. This means that they will check your credit history and credit score, which are calculated based on your payment history, outstanding debts, credit enquiries, length of credit history, and new credit.

Taking out an investment home loan can impact your credit score, but whether it is a positive or negative impact can depend on a range of factors.

If you’re approved for an investment home loan, this will show up on your credit report as a new line of credit. The new credit can affect your credit utilisation ratio, and, in some cases, having too much debt can hurt your score.

Applying for multiple loans or credit cards in a short period of time can also hurt your credit score. If you are shopping around for an investment home loan, try to avoid applying for multiple loans at once.

Despite the potential impact on your credit score, however, taking out an investment home loan may actually benefit your credit in the long run. Making on-time payments and paying off your debt can improve your payment history, which can lead to an increase in your credit score over time.

The eligibility criteria for an investment home loan will depend on the lender you apply with and your own personal circumstances. Here's are some of the key eligibility criteria you may come across for an investment home loan in Australia:

• Loan-to-value ratio (LVR). The LVR is the percentage of the property's value that you can borrow from the lender.
• Income. Your income plays a vital role in determining your eligibility for an investment home loan. Generally, lenders require you to have a stable income that's sufficient to cover your loan repayments. They may ask for proof of employment, payslips, and tax returns to verify your income.
• Credit score and credit history. A good credit score indicates to the lender that you're responsible with your finances and can manage your loan repayments.
• Property type. Lenders prefer investment properties that have a high potential for capital growth and rental yields. So, before you apply for an investment home loan, you need to make sure that the property you want to invest in meets the lender's criteria.
• Other debts. Lenders also look at your other debts to ensure that you can afford to make your loan repayments. They may ask you about your other financial commitments, such as credit cards, personal loans, or other mortgages, to determine your ability to service the loan.

It’s important to check the eligibility criteria of your lender before you apply for a loan. A declined loan application can also have a negative impact on your credit score.

We’re not going to sit here and tell you which specific loan will suit which kind of investor. Instead, we’ve given you jargon-free facts to help you understand how this kind of loan works, and then we’ve laid out simple, easy-to-follow questions to help compare a range of home loan options, for these and other kinds of loans. This means you’ll have tools to help you compare a range of investment home loans or any other kind of credit, so you can pick a loan that’s suitable for your needs.