Investment property loan

The main difference is the loan’s purpose. If you want to live in the property you buy, you’ll likely need a standard home loan, which is also called an ‘owner-occupied’ home loan. On the other hand, an investment loan might suit you better if you’re planning to rent out the property. Home loans for investment properties generally have a higher interest rate than a standard home loan, and your bank may need you to have a larger deposit. Good to know.

No matter what home loan you’re after, you’ll still need to make a financial contribution upfront. This might be a cash deposit or equity you may have in other properties. You can talk to a Home Loan Specialist or broker to work out how much you'll need to contribute. Your lender will also look at your ability to repay the investment loan, by considering your monthly income and expenses.

The short answer is yes – many property investors use the equity in their current home to get a loan for their next property, which is called usable equity. But it all depends on your circumstances. If you decide to use usable equity for a new loan, then ideally, the new loan should have a Loan to Value Ratio (LVR) of 80 per cent or less. This is because if you borrow anything above 80 per cent, you will have to pay Lenders Mortgage Insurance (LMI).

Here's an example of how this all works.

Say you have a home worth $600,000, but you still owe $300,000 on your home loan. This means you have a current LVR of 50 per cent. You can borrow up to $180,000 (which is the difference between your current loan balance and max usable equity to remain under 80% LVR) to put towards your next investment property without paying LMI, as your new LVR is still under 80 per cent. Now that’s smart.

Getting on the property ladder isn’t cheap. But knowing what to budget for can make it feel more manageable. Apart from your deposit, there are some upfront costs to prepare for, such as:

• Building and pest inspection
• Solicitors' fees
• Mortgage Registration Fee
• Lenders Mortgage Insurance (if applicable)
• Stamp duty (if applicable)
• Transfer fees
• Landlord insurance

It’s also a clever idea to set some money aside for emergency repairs or maintenance to your investment property – from fixing a crack to giving your doors a new lease on life, you never know when you might need to fund a repair or two.

Check out our upfront costs calculator to work out the costs you’ll need to pay at the start of your journey.

Rentvesting is when you buy an investment property in an area that's within your budget, while renting in an area that suits your lifestyle. Any rental income you earn on your investment property can help pay the bills for your dream rental. It’s a win-win for lots of first-time buyers.

Rental yield is a measurement that compares the amount of money you make on an investment property with its actual value. This calculation is a great way to see if your investment property is profitable.

For example, your property (worth $600,000) might earn an annual income of $29,172 ($561 per week). When you divide the income by the property’s value, you’ll get your rental yield. So in this case, the rental yield is 4.86 per cent.

Negative gearing is where the costs involved with an investment (like interest on a home loan or body corporate fees) exceed the income the property earns (most likely from rent). These expenses can be offset against your taxable income, which can reduce how much you might have to pay when it’s tax time. Most banks consider both negative and positive gearing when working out how much you can borrow.

Capital growth is the increase in market value of your property over time. If you keep the investment property, this becomes an increase in equity.

But if you decide to sell your investment property, then you will have to report capital gains or losses in your income tax return. This would depend on if you sold the investment home for more or less than its original price.

If you have a capital gain and earn a profit from the sale, then this will increase the tax you’ll have to pay. However, if you lost money from the sale, then the loss can offset other capital gains you accumulated in the year, such as from stocks, which can reduce how much tax you owe.

We have plenty of easy-to-use calculators to help you work out borrowing power, repayments, refinancing, loan comparisons, stamp duty and other upfront costs. You can check them out on the home loan calculators page.

Most banks offer several investment loan options including fixed rate loans, variable rate loans and split loans (a combination of fixed and variable). You can also choose how you want to pay off your loan via two repayment methods called ‘principal and interest’ or ‘interest only’.

Paying off principal and interest is when you repay the original amount you borrowed, on top of interest. Meanwhile, an interest only loan is when you only pay back the interest charged on your home loan, which can reduce the overall loan balance because you’re not making any ‘principal’ repayments.

Speak to a Home Loan Specialist or broker to work out which investment loan is right for you.

When someone agrees to buy a property, a ‘subject to finance’ condition is a legal clause that protects the buyer in case they can’t get the necessary finances.

A mortgage offset account uses the balance of a linked everyday account to reduce the interest charged on your home loan. This can help you pay off your investment property loan faster, while still giving you access to the funds in your offset account.

An interest only home loan is where you only pay the interest charges on your home loan. Investors might choose an interest only home loan to boost cashflow. This is because repayments are typically lower than those on a principal and interest (P&I) home loan. You can also benefit from capital growth even though you’re not paying back the original loan amount.

Most banks have a maximum interest only period, which you can extend based on the bank’s initial assessment once the period is up. Or your loan might revert to P&I automatically.

By comparison, a standard home loan is P&I, where your repayments go towards paying back a portion of the original loan amount and the interest accrued. This is a great option if you want to increase your equity while benefitting from lower repayments. At the end of the day, your repayment option is entirely up to you.

There are a few different ways you can apply for an investment home loan. You can apply online with our digital application, speak to a Home Loan Specialist, visit your local branch, or go through a home loan broker.

Your deposit and any costs associated with the property are withdrawn from your chosen bank account on settlement day. Your solicitor will confirm the total costs and contribution you’ll need to pay, so keep an eye out for the details.

It’s a smart idea to make sure the funds are in your account a few days in advance to avoid delays on settlement day.

It really depends on your property and how you plan to keep maintain it. Some of the ongoing costs can include insurance, property maintenance, rates, loan repayments, body corporate fees and property management fees.

Landlord insurance can help cover loss of rent and damage by tenants. It’s an option worth considering if you’re looking for peace of mind.

There are plenty of clever ways to pay off your investment property loan faster. You can set up auto-payments or use smart tools like The Boost.

With The Boost, you simply set an amount between $0.01 and $5 to automatically transfer to your home loan account every time you use your Great Southern Bank Visa Debit card. Every little bit adds up and the best part is you’ll be paying off your home loan faster, without even realising it.

If you’re not happy with your current investment home loan, refinancing can help lower repayments with a better rate, reduced fees and improved serviceability. Remember, there might be extra costs involved with refinancing that you’ll need to factor in too.

When refinancing, it’s important to think about the costs involved. Discharge fees, early payout fees and even Lenders Mortgage Insurance (LMI) are some of the common costs to be aware of. You can speak to your new lender about the different fees that are involved with refinancing.