Compare Investment Home Loan Rates Australia 2024 | Canstar (2024)

Investment home loans function in much the same way as other home loans do. A lender will loan a property buyer a sum of money, which is then paid back in regular instalments by the borrower, typically with interest included at a fixed or variable rate.

If you plan to live in the property, then you will apply for an owner-occupied home loan, whereas if you plan to rent it out, then you will apply for an investment home loan.

Learn more: Owner-occupied vs investment property

Applying for an investment mortgage is a similar process to applying for a loan for a house you intend to occupy. If you are curious about your options, you can compare investment property loans using Canstar’s comparison tool (by selecting the ‘investing’ option in the ‘Loan purpose’ field).

As with any other type of loan, lenders will want to get a full picture of your finances before approving you for an investment mortgage. This will typically mean looking at your income, savings and credit history, as well as any liabilities and debts you might have, and if you have any equity in other properties.

If you wish to know more, you can also read Canstar’s guide to what lenders look for in a home loan application.

When buying an investment property, the lender will also need details about the home you would like to buy (unless you are seeking pre-approval before you’ve started to look). They will also consider the possible rent you may earn from it, vacancy rates in the area, how much the property might cost to maintain, capital growth potential, and other costs.

The lender will use this information to determine the size of loan they believe you will be able to pay back. While the lender will consider the potential rental yield of the property you plan to purchase, your current income will likely be a key consideration also.

Lenders typically attach stricter approval conditions to investment mortgages because they are seen as higher risk than other types of home loans. This is thanks to such things as the potential for rental properties to be vacant, as well as expenses associated with maintenance and the risk of damage from tenants.

While the size of the deposit you pay will ultimately depend on the price of the property you wish to purchase, investment home loans often require a lower loan-to-value ratio (LVR), meaning you may be required to pay a larger deposit upfront.

LVR describes the maximum proportion of the value of your home that can be loaned out to you. For example, a bank may approve your loan for 80% of the property value, in which you must pay the remaining 20% as your deposit.

Some lenders may permit property investors to pay a lower deposit in exchange for taking out Lenders Mortgage Insurance, or if you use another property as security for the loan.

Explore: Calculate your borrowing power

When you take out an investment loan, you may be able to choose:

• a fixed interest rate loan, which means your interest repayments will remain the same over the lifetime of the loan
• a variable rate loan, which means they may go up or down as the lender adjusts its interest rates to suit the wider economic environment
• a split loan, which will allow you to choose what percentage of your loan is paid back at a fixed rate, and what percentage is paid back at a variable one
• an interest-only loan, for which only the interest portion will be paid off for a set period, typically one to five years.

Rates listed on Canstar’s home loans database show that, on average, the interest rates for investment loans will tend to be higher than those charged on owner-occupied loans. This is once again because lenders tend to view investment home loans as riskier than other types of mortgages.

If you are looking for a favourable home loan interest rate, it can pay to compare lenders. You may have a home loan with one lender, and be tempted to take out another with the same lender if you purchase an investment property, simply because it seems more convenient. This could mean, however, that you might miss out on a more favourable rate with a competing lender. Rates listed on Canstar’s database show that there can be a large difference between the highest and lowest mortgage rates on offer.

When it comes to comparing home loans, the interest rate is an important consideration and can make a significant difference in the total cost of any loan. However, there are a number of other factors you may also want to consider. These factors include:

• any fees attached to the loan
• the features available, including whether it has an offset account or redraw facility.

If you are interested in an investment home loan, or simply want to get an idea of what rates are currently out there on the market, you can compare home loan rates and features with Canstar’s comparison tools, which include expert ratings.

And, as with all major financial decisions, it is important to do your research, compare your options and consider seeking professional financial advice before jumping in.

When you have an idea of what rates are on offer in the market, you may decide to then approach lenders and negotiate for a better deal.

To maximise your chances of being offered a discounted rate, you may need to demonstrate that you are a reliable borrower. One way to demonstrate that you are a reliable borrower is to save up as much money as possible for a property. If you already have another property all or partly paid off, you will have equity in that property, and you may be able to use this equity as a deposit.

Learn more: How to haggle for a lower home loan rate

There can be a number of potential advantages and disadvantages to owning an investment property, and it is important to consider these carefully before purchasing one. Before buying an investment property or taking on an investment home loan, it could be a wise idea to consult a suitably qualified professional.

Potential benefits of an investment property

The possible upsides of owning an investment property may include:

• having a source of long-term income, provided that it is positively geared (you have paid off the accompanying mortgage and choose to keep the property tenanted)
• having an asset to pass down to future generations of your family
• potential tax advantages, with the Australian Tax Office (ATO) stating that some of the costs of buying and maintaining an investment property can be claimed as tax deductions, called “negative gearing”
• the potential to see an increase in the value of your investment, thanks to the fact that house prices in Australia have generally grown over time, and are projected to grow further
• the potential to use your investment property as equity when applying for other loans.

Potential drawbacks of an investment property

The potential downsides of owning an investment property may include:

• the possibility that the property may sit vacant for a time, meaning you will need to pay the mortgage on it without the assistance of incoming rent
• potential financial risks posed by tenants, who might damage the property, or might cost you money in legal fees if you need to initiate eviction proceedings
• the cost of maintenance and expenses, which can vary depending on the age and condition of the home, although these costs may be offset by negative gearing
• potential capital loss, if the market takes a turn and the value of your property is lower than the balance of your home loan, putting you in a position of negative equity.

Negative gearing is a way for eligible investment property owners to potentially save money on tax, according to the Australian Taxation Office (ATO). In short, when you have an investment property but the money you earn in rent over the course of a financial year is less than the amount you spend on the property (in home loan repayments, repairs, fees and other costs), then the property is said to be negatively geared. According to the ATO, your investment property is negatively geared if your tax-deductible expenses on it over the course of a financial year are greater than the income you earn from it.

If you wish to know more, you can read our explainer on negative gearing and how it works

A positively geared investment property is one that generates more in rental income than it does in expenses such as loan repayments and fees. A positively geared property can mean more cash flow, however, you may need to pay tax on these earnings – see the ATO website for more information.

If you wish to know more you can read our explainer on positive gearing and how it works.

Please note that these are a general explanation of the meaning of terms that may be used in relation to home loans or mortgages for investors.

The wording of loan terms and conditions may use different phrases or terms, and you should read the terms and conditions of the relevant loan to understand the features and cost of that loan. You cannot rely on these terms to be part of any loan you may take out.

Refer to the lender’s Key Facts Sheet and other applicable product documentation, and see Canstar’s Financial Services and Credit Guide (FSCG).

• Comparison rate: An interest rate figure that represents the total annual cost of the loan, including the annual interest rate, monthly repayments, and most ongoing and upfront fees and charges. Under the law and on the Canstar website, all comparison rates for home loans are based on a $150,000 loan over 25 years (read the comparison rate warning). Learn about comparison rates.
• Credit rating (credit score): An assessment (typically performed by specialised credit bureaus) of the creditworthiness of individual borrowers, based on their borrowing and repayment history (credit report). Lenders consider your credit rating when deciding whether or not to give you a loan, how much to loan you, and what interest rate you will pay. You can check your credit score for free with Canstar.
• Deposit: In the context of home loans, a deposit is a percentage of the purchase price that you will typically need to save and pay upfront. Find out more about home loan deposits and how they work.
• Debt-to-income ratio: A comparison that takes in the amount of debt you have relative to your overall income. Lenders may use this calculation as a way to measure your potential eligibility for a loan. Learn about debt-to-income ratios.
• Fixed rate: A fixed rate home loan allows a borrower to lock in an interest rate for a particular period of time, typically from one year up to five years. The interest rate that the borrower pays will remain the same for that amount of time, regardless of changes in the RBA cash rate and other market conditions.
• Guarantor: If someone ‘goes guarantor’ on your loan, it means that they are promising (‘guaranteeing’) that they will be liable for the loan if repayments are not made. The guarantor also means they must be able to demonstrate their own capacity to repay your loan. Learn about guarantors on home loans.
• Introductory rate or honeymoon rate: An introductory rate offered to entice borrowers with a low advertised rate for the first few months of the loan. After the honeymoon period, the loan reverts to the standard variable rate offered by the lender. Use our Honeymoon Rate Calculator to estimate the cost of the loan over a specific period of time.
• Lenders mortgage insurance (LMI): Insurance that the lending institution takes out in case of default from the borrower, which the borrower must pay for. Usually applies to home loans with a high LVR (more than 80%). Learn about LMI.
• LVR (loan-to-value ratio): This is the maximum proportion of the value of your home that can be loaned out to you. For example, a bank may approve your loan for 80% of the property value, in which you must pay the remaining 20% as your deposit. Find out how LVR affects your interest rate and LMI.
• Negative equity: Negative equity is when the market value of your property is lower than the balance remaining on your home loan. Find out more about negative equity
• Negative gearing: When the income from an investment property is not enough to pay the interest on the home loan for that property, negative gearing is currently available as a tax deduction against that income. Learn about negative gearing.
• Offset account: A savings account linked to your loan to offset the interest charged on your loan. The money (or credit) in your account is offset daily against your loan balance, which reduces the daily mortgage interest charges. Learn about offset accounts.
• Positive gearing: When you borrow money to invest, and the income you earn from an investment is higher than your ongoing expenses, then the investment is positively geared. Learn about positive gearing.
• Pre-approval: An initial approval process where the bank provides a borrower with an estimate of how much they could borrow, based on information they have provided to the bank. Find out how to get home loan pre-approval.
• Principal: In the context of a home loan, the principal is the amount of money that you borrow from a lender. It can refer to the initial size of a loan, as well as the amount of money left to pay off on a loan.
• Redraw: A home loan feature that enables the borrower to withdraw funds they have already paid. Usually this is conditional on a borrower being far enough ahead on loan payments, and based on the loan they have been approved for. A redraw facility is not available on all loans. Learn about the pros and cons of redraw facilities.
• Settlement date: The date on which transfer of ownership officially takes place – the buyer pays the rest of the purchase price, and the final legal documents are exchanged. It is also usually the date on which the buyer receives the keys and assumes possession.
• Split loan: A home loan in which a predetermined portion of the loan is locked in at a fixed interest rate and the rest comes with a variable rate of interest. Learn about split loans.
• Stamp duty: The state or territory government’s tax calculated on the borrower’s loan amount. Calculate your stamp duty with our calculator.
• Variable rate: A home loan interest rate that fluctuates according to the official cash rate set by the Reserve Bank of Australia. The rate can go up or down over time, varying your repayments.