Investment Home Loan Rates Compared

Investment loan rates are an essential consideration for anyone looking to invest in property in Australia. Whether you're a first-time investor or an experienced buyer, finding the best loan rate can make a significant difference to your overall investment strategy. In this comprehensive guide, we'll compare investment home loan rates from a wide range of lenders and provide expert tips on how to find the best loan for your needs.

Variable Investment Home Loan Rates Comparison

One of the first things you'll need to consider when comparing investment home loan rates is whether you prefer a variable or fixed rate. Variable rates can fluctuate over time, meaning your monthly repayments may increase or decrease depending on market conditions. This flexibility can be beneficial if you expect interest rates to decrease in the future, but it also carries the risk of rates rising.

Fixed rate investment home loans, on the other hand, offer stability and certainty. Your interest rate is locked in for a specific period, typically between one and five years. This allows you to budget your repayments more accurately and provides protection against potential rate hikes. However, fixed rates can be higher than variable rates, especially if you choose a longer fixed term.

How do Investment Property Home Loans Work?

Investment property home loans are specifically designed for borrowers who intend to purchase a property for investment purposes, rather than for personal use. These loans often have different terms and conditions compared to owner-occupier loans, including higher interest rates and stricter lending criteria.

Investment property home loans typically require a higher deposit compared to owner-occupier loans. While you can still borrow up to 95% of the property's value, a larger deposit can help you secure a better loan rate and avoid costly lender's mortgage insurance (LMI).

Types of Investment Home Loans

There are various types of investment home loans available in Australia, each with its own features and benefits. Here are some of the most common options:

• Principal and interest home loans: With this type of loan, you make regular repayments towards both the principal amount borrowed and the interest charged by the lender.
• Interest-only home loans: Interest-only loans allow you to pay only the interest on the loan for a specified period, usually between one and five years. This can be advantageous for investors looking to maximize cash flow or take advantage of tax benefits.
• Line of credit home loans: A line of credit loan gives you access to a predetermined credit limit, which you can use for investment purposes. This type of loan is often popular among experienced investors who want more flexibility in managing their finances.

Investors with an Interest-only Loan Need an 'Exit Strategy'

While interest-only loans can provide short-term benefits for investors, it's crucial to have an 'exit strategy' in place. This means having a plan to transition from interest-only repayments to principal and interest repayments at some point in the future. Without an exit strategy, you may face financial challenges when the interest-only period ends and your repayments increase.

How to Compare Investment Home Loans

When comparing investment home loans, it's essential to consider more than just the interest rate. Here are some other factors to keep in mind:

• Loan features: Look for features such as an offset account or redraw facility, which can help you save on interest and access additional funds if needed.
• Fees and charges: Consider upfront fees, ongoing fees, and any other charges associated with the loan. These can significantly impact the overall cost of borrowing.
• Repayment structures: Some loans offer flexibility in repayment structures, such as weekly, fortnightly, or monthly repayments. Choose an option that aligns with your income and budgeting preferences.

Offset Account versus Redraw on Investment Loans

An offset account and redraw facility are two common features offered by lenders on investment home loans. Both options can help you save on interest and potentially pay off your loan faster.

An offset account is a separate savings account linked to your loan. The balance in the offset account is 'offset' against your outstanding loan balance, reducing the interest charged on the loan. This can be especially beneficial if you have a significant amount of savings.

A redraw facility, on the other hand, allows you to make additional repayments towards your loan and then 'redraw' those funds if needed. This can be useful if you want the flexibility to access your extra repayments but don't have a large amount of savings to offset against your loan.

How to Apply for an Investment Home Loan

Applying for an investment home loan follows a similar process to applying for an owner-occupier loan. Here are the general steps involved:

1. Research lenders and compare loan rates and features.
2. Calculate your borrowing capacity to determine how much you can afford to borrow.
3. Gather the necessary documentation, including proof of income, identification, and financial statements.
4. Complete the loan application form provided by the lender.
5. Submit your application and wait for the lender's assessment.
6. If approved, review the loan offer and conditions.
7. Sign the loan agreement and any other relevant documents.
8. Settle the loan by completing the necessary legal and financial requirements.

How to Get Your Investment Loan Approved

Getting your investment loan approved requires careful preparation and attention to detail. Here are some tips to increase your chances of approval:

• Maintain a good credit score: Lenders assess your creditworthiness when considering your loan application. Paying bills on time, reducing existing debts, and avoiding new credit applications can help improve your credit score.
• Show genuine savings: Lenders prefer borrowers who can demonstrate genuine savings. Saving a deposit over time shows financial discipline and reduces the risk for the lender.
• Provide accurate and complete documentation: Ensure all the required documentation is accurate, up-to-date, and complete. Incomplete or inconsistent information can delay the approval process or result in a declined application.
• Consider using a mortgage broker: A mortgage broker can help you navigate the loan application process, compare lenders and loan options, and increase your chances of approval.

Investment Home Loans FAQ

Here are some frequently asked questions about investment home loans:

• Can I use equity in my existing property to purchase an investment property?
• How much deposit do I need for an investment property loan?
• What is a comparison rate, and why is it important?
• Can I claim tax deductions on my investment property?
• Are there any restrictions on borrowing for foreign investors?

Editor: Sean Callery

Sean Callery is an experienced investor and broker who specializes in investment property finance. With years of experience in the industry, Sean provides expert advice and tips to help investors navigate the complex world of investment home loans.

Home Loans Expert: Mansour Soltani

Mansour Soltani is a renowned home loans expert with extensive knowledge of the Australian property market. Mansour has helped countless investors find the best investment loan rates and navigate the loan application process with ease.