Home Loans For Investment Properties

Residential investment properties have averaged a strong return in Australia over the last decade, and investment property home loans may be a way to get into the market if you don’t have the equity to purchase a property outright.

According to the Russell Investments/ASX Long Term Investing report in the decade leading up to December 2017 residential property investments averaged 8% return on investment per annum. In 2016, CoreLogic reported approximately 15.7% of taxpayers had an investment property. 

What constitutes an investment property?

Essentially, there are two types of residential property owners: owner-occupiers, and investment property owners.

Owner-occupiers purchase the house with the intention to live in it. Investors will purchase the property usually with the intent to either rent it out, or renovate and sell it.

If you’ve done a bit of investment property research, you may have come across the term ‘flipping it’. This refers to short-term real estate transactions, and is a process in which investors will purchase a property in a rapidly growing area with the intention to sell it later for a profit, or purchase it and make renovations or cosmetic changes to increase its value.

Can you get a home loan specifically for investing?

Yes! There are home loans that specifically cater to investing. 

In fact, the value of finance commitments behind property investments has grown over the years, and even surpassed the total financial commitments for owner-occupier properties in 2014.

The table below from Business Insider shows the trend.

Source: Business Insider

What are the key differences between home loans for investment vs. owner occupiers?

While these loans operate in the same way as a conventional mortgage there are usually higher interest rates and fees associated with investing loans as many lenders may consider investment loans riskier. 

Often, you’ll find most investment property loans require 20% down though, like traditional mortgages, it is possible to get 90 and even 95% investment loans. Some lenders may require you to make Principal & Interest repayments on 95% loans until you owe 90% or less on the value of the property.

If you have a minimum of 20% deposit, like home mortgages, you may be eligible to not pay Lender’s Mortgage Insurance. This will help to further reduce costs.

While lending rules may be stricter for investments, when you apply for an investment property, the expected income you will earn from rental payments is also taken into consideration. This could be an important part of getting approved, especially with a smaller deposit. 

Not only are interest rates generally higher on investment properties, but typically closing costs and appraisal fees tend to be slightly more expensive. For investors looking for the cheapest option, it is advised you look for loans that don’t charge high ongoing fees or closing costs.

Your intentions for the investment property will also determine whether you go for a fixed home loan, construction loan, offset mortgage or variable rates

Lowest interest rates for 1-year fixed home loans

The comparison table below display some of the 1 year fixed rate investment home loan products on Canstar’s database with links to lenders’ websites available for a loan amount of $350,000 at 80% LVR in NSW, and available for Principal and Interest repayments. The results are sorted by ‘current rate’ (lowest to highest), then by provider name (alphabetically).

*Comparison rate based on loan amount of $150,000. Read the Comparison Rate Warning.

Lowest interest rates for 3-year fixed home loans

The comparison table below displays some of the 3 year fixed rate investment home loan products on Canstar’s database with links to lenders’ websites available for a loan amount of $350,000 at 80% LVR in NSW, and available for Principal and Interest repayments. The results are sorted by ‘current rate’ (lowest to highest), then by provider name (alphabetically).

*Comparison rate based on loan amount of $150,000. Read the Comparison Rate Warning.

Lowest interest rates for 5-year fixed home loans

The comparison tables below display some of the 5 year fixed rate investment home loan products on Canstar’s database with links to lenders’ websites available for a loan amount of $350,000 at 80% LVR in NSW, and available for Principal and Interest repayments. The results are sorted by ‘current rate’ (lowest to highest), then by provider name (alphabetically).

*Comparison rate based on loan amount of $150,000. Read the Comparison Rate Warning.

What are the advantages and disadvantages of an investment property?

Property is an increasingly popular investment for many reasons, but it’s important to also be aware of its downsides.

Potential advantages

  • Potential for growth – either the area the property is in will increase in demand or value, or renovations/cosmetic changes will increase the value of the property
  • Constant returns – if you are renting out the property, short of gaps in residency, you can expect regular income from rental payments
  • Tax deductions – you may be able to claim tax on any expenditure on your property
  • Equity – you can use your investment property as equity when applying for other loans

Potential disadvantages

  • Liquidity – the cash value behind your asset is harder to access, and selling property can often be a time-consuming (and costly) process
  • Tenancy – as mentioned above, there is always the risk of your property being vacant for a time if there are no suitable tenants, meaning a loss of rental income for an indeterminate period
  • Cost – property is expensive! The initial cost of a house and need for approval for home loans can prove a challenging barrier to entry

How do I apply for an investment home loan?

Applying for an investment loan is a similiar process to applying for a loan for a house you intend to occupy.

Canstar offers a comparison of lenders specifically for investment property loans.

Compare Investment Property Loans with Canstar

 

There are a few things you may want to check are in order prior to applying for your investment property loan.

 

What now?

If you’re considering investing in property, the first step is to consider your financial situation and borrowing power. It’s important to compare different lenders and take into account not just interest rates, but ongoing and other fees and how they may affect your investment. Remember, this advice is general and doesn’t take into account your specific needs. For more accurate estimates we recommend using our comparison tool.

Compare Investment Property Loans with Canstar

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