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Investment property home loans
Expand your property portfolio with an investment loan that works for you.
Planning to invest in property? Maximise your returns with an affordable investment loan rate and a mortgage that matches your investment strategy. Here’s how you can find one.
What is an investment mortgage?
An investment loan lets you borrow money to buy a property for investment. It’s a mortgage, but not for the house you live in. That’s called an owner-occupier loan.
As an investor, you usually lease the property to a tenant and receive rent. All going well, the property’s value rises over time, meaning you can make a capital gain.
These loans have all the same features as other mortgages, but investment loans tend to have higher interest rates and stricter eligibility standards.
How do I find the right loan for my investment?
All would-be investors should consider the following when finding the right mortgage:
- Low rate. For any borrower, a lower investment loan interest rate means lower repayments. As an investor, interest charges are tax-deductible, which is a big plus.
- The fewer the fees, the better. Avoiding fees where possible can also make your loan cheaper.
- Loan type. You have to choose between a fixed rate or a floating rate and consider whether you want an interest-only investment loan.
- Features. Mortgage features like an offset account can be very helpful if you know how to take advantage of them. It all depends on your investment strategy.
Investment strategies, loan types and more
The type of investment loan you need depends heavily on your investment strategy. Some investors may prefer a simple “buy and hold” strategy of collecting rent, paying off the mortgage and hoping for a modest capital gain.
Some investors, confident of a boom in prices, may only hold their investment for a few years and try to sell again at a profit. This more daring strategy often involves making smaller interest-only payments (meaning you don’t repay the loan itself until you sell).
And negative gearing is another factor that many investors take advantage of regardless of their loan type.
It’s also possible to purchase an investment via a self managed super fund (SMSF) loan or fund part of your investment by borrowing equity in your own home through a line of credit loan.
Are eligibility requirements stricter for investors?
Lenders treat investment properties as higher risk purchases. This means it can be harder to get an investment loan approved.
Here are some tips for a successful property investor loan application:
- Check your credit score. A quick check of your credit score is a good idea to make sure you don’t have any debts or credit problems that could harm your application. Lenders refer to your credit report before making a decision, so it’s important to understand what’s on it before you apply.
- Save a bigger deposit. Having a 20% deposit is an advantage when applying as an investor. You can find loans that will let you borrow more than 80%, but they’re harder to get.
- Get all your paperwork together. Having a strong application supported by financial documentation is a must.
- Trim your spending. Lenders examine an applicant’s spending very carefully. Cutting back on unnecessary purchases in the three months leading up to your application will boost your chances of approval.
- Choose your property carefully. Lenders use your property as security. If the property you’re buying looks like a bad investment they might reject your application. Buying a small unit in a postcode where there is an oversupply of such properties could be a red flag, for example. Talk to the lender before applying.
- Talk to a mortgage broker. A qualified broker can help you apply for a loan that you can actually get. They can help with the paperwork too.
How to get your investment mortgage approved
Assuming a lender will accept every property is a mistake. Investors sometimes purchase properties only to be shocked when the property is rejected altogether by the lender.
Buyers also need to be confident that they aren’t paying too much. Conducting recent comparable sales analysis, and focusing on recently sold properties on similar land size, with similar layout, style and age in a similarly regarded street is crucial. If they can’t identify properties to support the price they are prepared to pay, they need to anticipate that the lender’s valuer may not be able to justify it either.
Are you ready to be an investor?
Property investment is risky. Rental income and capital gains are never guaranteed. Before taking the plunge, here are some of the potential risks and benefits you should think about.
- Costs. There are also many upfront costs for investors, including lenders mortgage insurance (LMI), building and pest inspections, conveyancing and legal charges. As the owner of the property, you’ll also be responsible for covering ongoing costs such as repairs and maintenance.
- Managing tenants. Being a landlord means dealing with the tenants in the property. You can do it yourself or outsource this work to a real estate agent, but you will have to pay a commission.
- Selling takes time. Selling property can take a while. If you need your investment cash on short notice, then property might not be for you.
- Rental income. An investment property can increase your cash flow by providing you with a second income source through rental income. A well-located property could provide 3–5.5% rental yield.
- Capital gain. When it comes time to sell your property, you may benefit from making a capital gain if the value of your property has risen.
- Tax and depreciation benefits. You can deduct investment loan interest charges and other investment costs from your tax.
- Add value. Unlike shares, you can often add value to an investment through renovations.
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