Investment property home loans

Investing in property is a popular form of wealth management in Australia. Many investors are attracted by the tax advantages of negative gearing, and securing the right kind of investment property home loan can help to maximise your tax deduction. Check out the available investment property home loans on this page.

By   |   Verified by David Boyd   |   Updated 2nd December 2020

Comparing investment property home loans for $450,000.00 over 30 years

Virgin Money Reward Me Fixed Rate Home Loan (3 years) $300K and above (Investor, Principal and Interest) LVR <80%

Virgin Money Reward Me Fixed Rate Home Loan (3 years) $300K and above (Investor, Principal and Interest) LVR <80%

Interest rate (p.a.)

2.69%

Comp rate^ (p.a.)

3.34%

Max LVR

80.00%

Application fee

$300.00

Monthly repayment

$1,822.82

Total repayment

$656,215.20

Highlights

  • Competitive fixed rates for 1 to 5 years terms.
  • Additional repayments up to $10,000 per annum.
  • Reverts to the discounted variable rate on expiry of the fixed term.

Bank promo

  • Get a little something back with $3,000 cashback when you refinance with Virgin Money. Terms, Eligibility & Credit Criteria apply. New eligible refinance loans & companion account. Apply between 30 November 2020 to 22 January 2021, and settle by 23 April 2021. Minimum loan amount of $300,000 and up to 80% LVR.
Smart Investor Home Loan 90 (Investor, Principal and Interest)

On loans.com.au's website

Smart Investor Home Loan 90 (Investor, Principal and Interest)

Interest rate (p.a.)

3.09%

Comp rate^ (p.a.)

3.11%

Max LVR

90.00%

Application fee

$0.00

Monthly repayment

$1,919.13

Total repayment

$690,886.80

Highlights

  • Explore loans.com.au's award-winning, low-rate home loans with added personal service for each stage of your property investing journey.
  • Redraw offset facility available for +0.10%.
Virgin Money Reward Me Fixed Rate Home Loan (2 years) $300K and above (Investor, Interest Only) LVR <80%

Virgin Money Reward Me Fixed Rate Home Loan (2 years) $300K and above (Investor, Interest Only) LVR <80%

Interest rate (p.a.)

2.99%

Comp rate^ (p.a.)

3.40%

Max LVR

80.00%

Application fee

$300.00

Monthly repayment

$1,894.79

Total repayment

$682,124.40

Highlights

  • Competitive fixed rates for 1 to 5 years terms.
  • Additional repayments up to $10,000 per annum.
  • Reverts to the discounted variable rate on expiry of the fixed term.

Bank promo

  • Get a little something back with $3,000 cashback when you refinance with Virgin Money. Terms, Eligibility & Credit Criteria apply. New eligible refinance loans & companion account. Apply between 30 November 2020 to 22 January 2021, and settle by 23 April 2021. Minimum loan amount of $300,000 and up to 80% LVR.
Virgin Money Reward Me Fixed Rate Home Loan (3 years) $300K and above (Investor, Interest Only) LVR <80%

Virgin Money Reward Me Fixed Rate Home Loan (3 years) $300K and above (Investor, Interest Only) LVR <80%

Interest rate (p.a.)

2.99%

Comp rate^ (p.a.)

3.38%

Max LVR

80.00%

Application fee

$300.00

Monthly repayment

$1,894.79

Total repayment

$682,124.40

Highlights

  • Competitive fixed rates for 1 to 5 years terms.
  • Additional repayments up to $10,000 per annum.
  • Reverts to the discounted variable rate on expiry of the fixed term.

Bank promo

  • Get a little something back with $3,000 cashback when you refinance with Virgin Money. Terms, Eligibility & Credit Criteria apply. New eligible refinance loans & companion account. Apply between 30 November 2020 to 22 January 2021, and settle by 23 April 2021. Minimum loan amount of $300,000 and up to 80% LVR.
Loans.com.au Construction Loan 80 (Investor, Interest Only)

On loans.com.au's website

Loans.com.au Construction Loan 80 (Investor, Interest Only)

Interest rate (p.a.)

3.57%

Comp rate^ (p.a.)

3.08%

Max LVR

80.00%

Application fee

$0.00

Monthly repayment

$2,038.33

Total repayment

$733,798.80

Highlights

  • Save money with the rollover rate of 2.99%
  • Apply online or on the phone with one of our Australian-based loan specialists.
  • Track your application until approved via onTrack app.

Overview

Loans for investing are used by purchasers of an investment property if they cannot afford to buy the property without loan finance. An investment property is usually purchased with the intention of renting the property to someone else, to create rental income and/or to realise a capital gain on selling the property, relying on property price increases over time.

More demanding loan conditions

Investment property home loans are subject to conditions which are different from the conditions on loans offered to owner-occupiers. Loans for property investors typically need a higher credit score and better overall creditworthiness than owner-occupier home loans. You can check your credit score here, free of charge, as often as you like. You can also get a free copy of your credit report – your credit history on which the score is based – once a year from the major Australian credit reporting agencies.

Since lenders need to be convinced that the investment borrower will be able to continue making the required loan repayments even if interest rates go up, they will also usually require a higher loan-to-valuation ratio (LVR). As a result, a higher deposit than the standard amount may be required.

Interest rates charged will also typically be higher than those offered to owner-occupiers.

Interest rates on loans for investment properties

Although the interest rates may be higher, investment loan rate types on offer will be similar to the rate types available for purchasers intending to occupy the property themselves.

Investment loan rates usually available are:

  • Fixed interest rate, often reverting to a variable rate after an initial period of 1-5 years
  • Variable interest rate, possibly featuring an extra repayment and redraw facility, and an offset account
  • Split interest rate, meaning that a part of the loan principal is subject to a fixed rate, and the remainder to a variable rate
  • Interest-only loan, particularly attractive to investors, because monthly payments are not repaying any part of the loan principal and are therefore 100% tax deductible. However, interest-only loans are riskier, particularly for the borrower, because they could result in negative equity (owing the lender more than the property is worth) in a property market where prices are falling.

Fees and charges for property investment loans

When investing in property, you also need to budget for the same loan fees that face owner-occupiers. Depending on the lender's fee structure, the percentage deposit you have saved and the loan term, you may have to pay any or all of the following fees:

  • Application fee or loan establishment fee
  • Lenders Mortgage Insurance (LMI) if your deposit is less than 20% of the value of the property
  • Account-keeping fees payable monthly or yearly
  • Early exit fee if you need to pay out the loan before the end of the agreed term
  • Loan discharge fee when the agreed loan term comes to an end
  • Refinancing fee if you need to refinance a short-term loan

Negative or positive gearing

When you deduct the cost of owning and maintaining a rental property (including loan interest charges) from the rental income you receive, you may make a profit. This is called positive gearing, and you will need to pay tax on the net income.

However, if the net result is a loss, this is called negative gearing. The annual loss you make on your investment property can be offset against your other income, such as your employment salary, to reduce the overall amount of tax you pay. Many investors are happy to negatively gear their investment property purchase because they expect to make a capital gain from property price increases, and the tax offset significantly reduces their holding costs.

Investors expecting to take advantage of negative gearing should always get advice from a tax accountant before taking out an investment loan.

Learn about investment property home loans

Find out what to look for when comparing home loans to invest in property.

  • Pros & cons

  • Tips

  • FAQs

Fund your retirement

Property investment, when handled successfully, is a popular way of saving for retirement, and for investing savings held in self-managed superannuation funds.

Interest rates could rise

We have all become so accustomed to ever-decreasing interest rates that it's easy to forget that rates could always rise in the future, especially given the really low current base. If interest rates rise it could become more difficult to meet loan repayments, especially if you have an interest-only loan and are already stretched.

Investment loans are harder to get

It's more difficult to get an investment property loan than an owner-occupier home loan. You may need a higher credit score and a larger deposit, and pay a higher interest rate, than you would for an owner-occupier home loan.

Less volatile than shares

Investing in property over the long term can be less volatile than shares or other investments, and is likely to deliver a greater return than leaving money in a savings account in the current low-interest environment.

Property investment is still a risk

While it is true to say that Australian property prices in general have always risen over the long term in the last forty years, graphs published by the Reserve Bank point to short term price dips, rental market prices failing to keep pace with property prices, and significant regional variations. So a property investment loan is still a risk if you get the timing or location wrong, or expect to make a profit from renting alone, rather than capital appreciation assisted by negative gearing.

Tax deductions from negative gearing

Property expenses and interest on property investment loans can be offset against rental income, and net losses can be offset against other income, reducing the amount of tax you pay on your total income. But always get professional tax advice about negative gearing.

The first step in building a property portfolio

Taking on your first home loan for investment purposes could be a way to secure prosperity, if you choose the right time to invest, and if you purchase a suitable property in an favourable area and find satisfactory tenants. That's a lot of ifs, and there are no guarantees of success, but many Australians have found property investment to be a secure and profitable venture.

Do your research and compare your options

Investing can be a risky business, so you need to minimise your costs and reduce your administrative burden by choosing the most suitable loan for your purposes. To do this you need to spend some time examining the loan options available to you and selecting the one with the best combination, for your needs, of the following features:

  • Choice of interest types, e.g. fixed, variable, split, interest-only
  • Low advertised interest rate
  • Low comparison rate
  • Low additional fees ( i.e. fees other than those included in the comparison rate)
  • 100% offset account
  • Extra repayment facility
  • Redraw facility

Get advice about negative gearing

The favourable tax treatment of investment properties is a major incentive for investment loans. Many investors rely on negative gearing to making property investment a profitable proposition while they still own the property – as a result of property holding losses able to be offset against other income for tax purposes – rather than having to wait until they sell before realising a profit. But it's a complicated area of tax law where everyone's situation is different, and there's no guarantee that the law will not change in the future. You should always seek advice from an accountant before getting a loan to buy an investment property with the intention of using negative gearing.

Look for lenders and advisors with an Australian Credit Licence

You should aim to protect yourself by only borrowing from a lender who has an Australian Credit Licence. Banks, building societies, credit unions and finance companies should have a credit licence, and so should financial advisors, finance brokers and mortgage brokers. Finty is a credit licensee. You can check the ASIC professional register to find out if a credit organisation is properly licensed.

Plan for a long-term investment

In common with most forms of investment, property investment is most likely to be successful if you intend to stay in the market for the long term. The passage of time has a habit of smoothing out the effect of short-term dips in house prices, so that the general trend is upwards over the long term. But you may increase the risk of a capital loss if you buy and sell a property within a period of less than five years. As far as possible, try to match your loan term and home loan investment rates with a long-term investment aim.

How can I buy an investment property with no money?

It's very difficult to do this, since the lender will usually insist on some kind of deposit, even if you pay Lenders Mortgage Insurance or persuade your parents to guarantee a part of your loan. They will want to be assured of your creditworthiness and ability to service the loan, and if you have no money and no history of saving for a deposit it's unlikely that you will be approved for an investment loan. However, there are still some lenders who might be willing to approve a loan to borrowers with little or no savings if they can access a First Home Owner Grant.

How do investment property home loans differ from owner-occupier home loans?

Investment property home loans typically have:

  • More stringent eligibility requirements in terms of creditworthiness and ability to continue servicing the loan in the event of an interest rate rise
  • A higher loan-to-valuation ratio (LVR), which means that a higher deposit is likely to be required
  • Slightly higher interest rates than owner-occupier loans

How much will I need as a deposit for an investment property home loan?

In recent times the Australian Prudential Regulation Authority (APRA) has insisted that lenders must reduce the growth rate in the number of investment property loans they make. As a result, many lenders have changed the loan-to-valuation ratio (LVR) they require to 80% or less. What this means is that if you are buying a property which the lender values at, say, $500,000, you will need a deposit of at least $100,000 (20% of the property’s value). If you do not have a 20% deposit you may have to pay a Lenders’ Mortgage Insurance (LMI) premium. LMI protects the lender against losses if you default on loan repayments and it cannot recover 100% of the amount you owe by repossessing and selling the property.

Young investors who do not have a 20% deposit could consider asking their parents to act as loan guarantors by allowing a part of the loan to be secured against a property their parents either own outright or have a substantial equity in.

What is an investment loan?

It's a loan used to buy a property intended to be rented to a third party rather than occupied by the borrower. Although it resembles a standard home loan in most of its features, investment home loans rates are often higher, and eligibility requirements – the amount of the deposit and the borrower's credit score – may also be higher.

What is an investment property home loan?

It is a type of loan used by purchasers of an investment property if they cannot afford to buy the property without loan finance. An investment property is usually purchased with the intention of renting the property to someone else, to create rental income and/or to realise a capital gain as property values increase. Investment property home loans are subject to conditions which are different from the conditions on loans offered to owner-occupiers.

What is negative gearing?

An investment property can be positively geared or negatively geared.

If it is positively geared, the property’s rental income is greater than the total cost of owning and maintaining it. The property owner must pay tax on the net annual profit after deducting the cost of owning and maintaining the property.

If it is negatively geared, the property’s annual rental income is lower than the total annual cost of owning and maintaining it. The property owner effectively makes a loss every year on owning and renting out the property, but the loss can be used as a tax deduction against the property owner’s other income, such as income from employment, so that less tax is paid overall. The investor expects to make a capital gain when the property value increases.

The types of cost that can be offset against rental income as costs of owning and maintaining the property include:

  • Interest charges (but not loan principal reduction) paid on the investment property home loan
  • Commission paid to real estate agents
  • Insurance premiums for home and contents, and landlord insurance
  • Cost of maintenance, such as repainting, plumbing and electrical repairs
  • Local government rates
  • Capital works costs, e.g. rebuilding a wall, replacing a roof
  • Decline in value of depreciating assets such as a dishwasher, stove, washing machine

Stamp duty payable on the initial property title transfer is regarded as a capital cost, and can't be counted as a tax deduction in the first year you buy the property. However, since it increases your property cost base, it will reduce the amount of capital gains tax you will have to pay if you sell the property at a profit.

Intending property investors intending to rely on negative gearing should consult a tax professional before taking out an investment home loan.

What other fees are attached to investment property home loans?

Other fees you may have to pay include:

  • Application/loan establishment fee
  • Lenders’ Mortgage Insurance if your deposit is less than 20% of the value of the property
  • Monthly or yearly administration fees
  • Early exit fee if you need to terminate the loan before the end of the agreed term
  • Loan discharge fee at the end of the loan term
  • Refinancing fee if you need to refinance the loan at the end of the agreed term (e.g. if you have an interest-only loan for five years, and then need to refinance)

What type of home loan is best for investment properties loans?

Many investors look for an interest-only loan to maximise their tax deduction while keeping monthly repayments as low as possible. Payments are low because they are not principal and interest payments, but cover only the interest charges.

However, this type of loan may not suit risk-averse investors, since there is a risk of negative equity – owing more on the home loan than the property is worth – because property prices have fallen, usually over a short term. And not all lenders offer interest-only loans.

What types of interest rate are available on investment property home loans?

Interest rates for investment loans are the same types available for owner-occupier home loans:

  • Variable interest rate: Interest on the loan principal is charged at the lender’s standard variable interest rate. The interest rate may go up or down at any time, usually in response to a change in the Reserve Bank of Australia’s official cash rate, meaning that the required periodic repayment amount will also go up or down. Periodic repayments include a portion of the loan principal as well as interest charges. Variable interest rate loans are usually more flexible, allowing extra repayments to be made, and have features like a 100% offset account and a redraw facility.
  • Fixed interest rate: Interest on the loan principal is charged at the lender’s standard fixed interest rate. The interest rate, and the required repayment, will not change during the fixed rate period. Periodic repayments include a portion of the loan principal as well as interest charges. Fixed interest rate loans are usually less flexible. Although it may be possible with some loans to make extra repayments, it’s less likely that an offset account will be a part of the package.
  • Split interest rate: In this case a part of the loan is subject to a variable interest rate and the remainder is subject to a split interest rate. Periodic repayments include a portion of the loan principal as well as interest charges.
  • Interest-only loan: Periodic repayments cover interest charges only. No part of the loan principal is repaid during the interest-only period (usually between one and five years), so the loan amount does not reduce. It means that repayments will be lower than required for a ‘principal and interest’ loan, but the interest rate is likely to be higher. Interest-only loans are popular with investors because 100% of the periodic repayments are tax deductible, since they contain no loan principal component. However, interest-only loans are also more risky in a volatile property market, where the market value of the property could potentially decline to a level below the amount of the loan principal, resulting in ’negative equity’.