If you're buying a house to live in, you need an owner-occupier home loan. If you're a property investor then you need an investment loan, which will have a higher rate.
This article was fact-checked and reviewed by Cam McLellan, a property investment specialist whose book, My four-year-old the property investor, has sold more than 100,000 copies. Content has been updated for 2022.
At a basic level, a home loan is a home loan, regardless of whether you're buying a home or an investment property. You apply, get approved, borrow money and pay it back with interest.
Where these loans differ is the tax benefits of an investment loan, how high the interest rate is and how hard it is to get your application approved.
What are the differences between owner-occupier and investor loans?
Here's a simple run-down of the differences between investor and owner-occupier loans:
Lower rates.Owner-occupier loans typically have lower interest rates than investor loans. In February 2022, the lowest variable investor rate in Finder's database was 2.14%. The lowest owner-occupier rate was 1.77%. That's a difference of 37 basis points.
Tax benefits. The interest you pay on an investment loan is tax-deductible, as are other costs like mortgage fees. This is because the tax office treats the investment as a business and expenses are tax-deductible. Home owners do not have this benefit with their home loans.
Ease of application. While it varies by lender and depends on your circumstances, it's often easier to get an owner-occupier loan than an investment loan. Lenders view owner-occupiers as lower-risk customers. This also depends on the current regulatory environment. A few years ago, regulators limited how many investment loans lenders could have on their books, making the application process tougher.
The importance of a lower rate
Getting a loan with a lower interest rate will always save you money. But if you are investing in property, you are trying to generate income through rent and hopefully a higher capital growth. But it's still worth understanding how a higher rate affects your monthly repayment obligations.
Say you have a $500,000 owner-occupier home loan with a rate of 2.30% over 30 years:
Monthly repayment = $1,924
Total loan cost over 30 years (including interest) = $692,642
But if this was an otherwise identical investment loan with a higher rate of 2.65%, you'd pay a lot more:
Monthly repayment = $2,014
Total loan cost over 30 years (including interest) = $725,334
With the higher rate, you'd pay $90 more a month and a total of $32,692 more in interest over 30 years.
To get a better understanding of how a lower interest rate can save you money and how owner-occupier versus investment rates compare over time, check out our lowest rate home loan guide.
When do you need an investment loan?
It sounds obvious but if you are buying an investment property, you need an investment loan. If you are planning to live in the property as your primary place of residence, then you're an owner-occupier.
This can get more complicated if you decide to turn your home into an investment property. When you do this, you need to tell your lender and refinance the loan to an investment loan.
Finder survey: How many investment properties do Australians of different ages have?
Response
75+ yrs
65-74 yrs
55-64 yrs
45-54 yrs
35-44 yrs
25-34 yrs
18-24 yrs
3
2.33%
0.58%
0.97%
0.97%
4.29%
1
4.97%
5.26%
6.76%
4.33%
2.91%
4.29%
2
1.86%
2.34%
1.45%
2.76%
0.97%
4.29%
4
0.62%
0.58%
0.79%
5
0.48%
1.43%
Source: Finder survey by Pure Profile of 1112 Australians, December 2023
Is it harder to get an investment loan?
In the past, the Australian Prudential Regulation Authority (APRA) introduced various lending restrictions on investor loans. This made it harder to get an investor mortgage.
While lenders are more flexible today, the legacy of these restrictions remains. Some lenders not only charge higher rates for investors, but they also require bigger deposits or lower loan-to-value ratios (LVRs) on investment loans. For example, a lender may offer owner-occupiers a home loan with an LVR of 90% (meaning a 10% deposit is required). But a similar loan for an investor could have an 80% LVR, meaning the borrower needs a larger 20% deposit.
Some lenders are stricter when considering an investor's application. Lender A might take into consideration 100% of the rental income your rental property generates, but lender B might only count 80% of the rental income when assessing whether you can afford the loan.
A brief recent history of investor lending rules
Cam McLellan is a property investment specialist, the co-founder of OpenCorp and the bestselling author of "My four-year-old the property investor".
What we saw in 2013 – 2017 wasn't unusual, given the market cycle. Sydney's median house price rose 75%, and in 2014 – 2018 Melbourne's median house price rose 59%. What happened next was a test of APRA's power over the market. It showed it could pull its levers to ensure our property markets maintained safe, consistent growth.
By February 2017: APRA was alarmed that 60% of Sydney property purchases were interest-only investment loans. This meant 60% of properties in Australia's most expensive market, at the end of a major growth phase, were being bought by speculators trying to get rich quick. The banks had to slow this down. APRA realised that too many investors were trying to buy at the end of a market growth period (and were potentially about to lose money when a correction occurred). So, they put measures in place to protect investors from buying in an overheated market.
APRA brought the sledgehammer down. It introduced major restrictions on lending to investors, which caused a massive reduction in borrowers who qualified for lending, which led to a slowdown in demand for housing. Sydney and Melbourne median house prices reduced accordingly. This was an expected market correction after the high growth.
By October 2017: APRA had instructed banks to reduce their proportion of interest-only loans to 30% by 31 October. The banks had to move fast to accommodate this, so they introduced massive incentives for borrowers to move from interest-only to principal-and-interest loans.
By December 2018: With the 30% cap achieved, APRA knew its levers had worked. It removed the cap and the market started to loosen. Prices started to rise due to genuine pent-up demand, rather than speculation. APRA had done its job.
From 2019 onwards
These days, there’s a significant gap between owner-occupier home loan rates and investor rates, but APRA has loosened lending restrictions, making it easier for investors to get finance approved. The government and APRA are confident that they have the levers to use when required, they are confident that our financial industry is "unquestionably strong".
How do I find a suitable home loan for me?
Investors and owner-occupiers are looking for the same thing, ultimately: a loan with a competitive interest rate and features that suit their needs. This differs depending on your financial goals and your investment strategy (if you have one).
Here are some tips:
Look for a lower rate loan. While investor rates are usually higher, whatever type of loan you need it's always good to find a more competitive deal. Compare home loan rates widely before applying.
Fixed or variable. Regardless of the purpose of the loan, you can get a fixed rate or variable rate home loan. Fixed rates mean certainty because your repayments won't change. Variable rates are easier to repay faster and tend to have slightly lower rates.
Work out what features you need. The best mortgage feature is an offset account, which lets you save money in the home loan and pay less interest. Investors and owner-occupiers can take advantage of offset accounts.
Repayment type. You can either choose to make principal-and-interest repayments or interest-only repayments on your loan. If you make principal-and-interest repayments, you repay the money you've borrowed plus interest together. With an interest-only loan, you don't repay the loan at first. Instead you get smaller repayments (just the interest) for a while, and repay it all later. Investors often use interest-only loans to minimise their short-term costs while maximising their investor tax benefits.
Frequently asked questions
Investment property loans can be harder to qualify for than loans for your own home, as lenders typically have stricter criteria. This includes higher deposit requirements, tougher income and asset checks and higher interest rates. All of these additional costs and criteria are to reflect the increased risk.
Investment loans typically have higher interest rates than owner-occupier loans. This is due to the increased risk associated with investment properties, as lenders consider borrowers more likely to default on investment property loans compared to their own homes.
Yes, you can change your home loan to an investment loan if you decide to rent out your property. However, you must inform your lender, as investment loans typically come with higher interest rates and different terms compared to owner-occupier loans.
You may be able to borrow more for an investment property if the rental income from the property increases your borrowing capacity. However, lenders generally have stricter lending criteria for investment loans, including requiring a larger deposit.
As an authority on all things personal finance, Sarah Megginson is passionate about helping you save money and make money. She is an editor and money expert with 20 years’ experience and an extensive background in property and finance journalism. Sarah holds ASIC RG146-compliant Tier 1 Generic Knowledge certification, and she's a regular media commentator, appearing weekly on TV (Sunrise, Channel 7 news, Nine news), radio (KIIS FM, Triple M, 3AW, 2GB, 6PR) and in digital and print media. See full bio
Sarah's expertise
Sarah has written 191 Finder guides across topics including:
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