Best Investment Home Loan Rates in Australia in 2023

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The Insider @ Houst
Last updated on
September 13, 2023

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Best Investment Home Loan Rates in Australia in 2023

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Adding property to your investment portfolio is a smart move. It brings in extra income through rent, the potential for your property's value to grow, and tax benefits. But here's the catch: Investment loan rates can be higher.

Why? Because lenders see property investors as riskier, they charge more. Getting an investment loan can be tougher.

But don't worry, you can manage the risk. It's crucial to know how investment loans work and what they offer. In this article, we’ll discuss the best investment home loan rates Australia. So, let’s get started!

Table of Contents

Features of Investment Home Loans

Source: https://www.forbes.com/advisor/au/home-loans/best-home-loan-rates/

 

Besides the higher interest rates, investment loans are like regular home loans.

One big advantage of using an investment loan is the tax perks. Unlike a standard mortgage, investment home loans can qualify for capital gains tax discounts, tax offsets, deductions for negative gearing, and maintenance deductions for long term lets. Applying these tax benefits can lower your taxable income and put more money back in your pocket.

Investment loans also have useful features that can boost your loan's success. The most popular ones include:

  • Offset accounts: These can help you save money on interest.
  • Fixed interest rates: Gives you stability in your loan repayments.
  • Extra repayments: Allows you to pay off your loan faster.
  • Interest-only repayments: Can provide flexibility in your payments.
  • Repayment holidays: A break from making payments for a while.
  • Redraw facilities: Access to extra payments you've made if needed.

These features are designed to save you money and work with most types of mortgages. Offset accounts, fixed rates, and extra repayments can even help you shorten the time needed to pay off your loan.

Why Are Investment Loans Pricier? 

Well, it all boils down to risk. Lenders see property investors as riskier customers, so they charge higher interest rates and fees for investment loans. Whether you plan to rent out your property or flip it for a profit, there are various factors, some in your control and some not, that can affect your ability to repay the loan.

One factor you can influence is your investment history. Having several investments is beneficial, but if one doesn't work out, it can impact the rest. This may cause difficulties in paying for your property investment.

Then there are factors beyond your control, like a tough market, difficulty finding tenants for your rental property, or problems with property values. Lenders have to consider these risks, too.

Because there's room for things to go wrong, lenders play it safe by charging higher fees and interest rates on investment loans. They're covered if you can't make your loan payments.

What About Interest-Only Loans?

Interest-only loans are a feature of investment loans that many property investors find attractive. They can help ease financial stress, lower monthly expenses, and simplify your budget. With an interest-only loan, you only pay the interest on the loan for a certain period.

This gives you a break from making payments towards the actual loan amount, which can be handy if you have other debts to manage. Some investors who plan to buy and then sell quickly (flippers) like interest-only loans because they focus on paying off the interest first, setting the stage for potential profit when they sell the property.

Experienced investors sometimes choose interest-only loans to take advantage of the tax benefits of investment property. For example, if your rental property brings in $20,000 in income but you pay $25,000 in interest that year, your property becomes 'negatively geared.' This allows you to claim investment property tax deductions for the difference between your rental income and the interest you paid.

Interest-only loans have higher interest rates, and you don't pay down the principal during the interest-only period, so you may pay more over the long run.

Current Investor Home Loan Rates in Australia

 

Looking for the best investor home loan rates in Australia? Since property investors often face higher rates, comparing your options is important. Here's a quick rundown of some investment loans currently available, along with their interest rates:

HSBC – Discounted Home Value Loan

  • Interest Rate: 4.54% p.a. (variable)
  • Comparison Rate: 4.55% p.a.
  • Initial Monthly Repayment: $2,791

CommBank Unloan – Variable Rate Loan

  • Interest Rate: 4.74% p.a. (variable)
  • Comparison Rate: 4.65% p.a.
  • Initial Monthly Repayment: $2,848

Suncorp – Back to Basics Special

  • Interest Rate: 5.05% p.a. (variable)
  • Comparison Rate: 5.06% p.a.
  • Initial Monthly Repayment: $2,938

Loans.com.au – Green Home Loan

  • Interest Rate: 5.14% p.a. (variable)
  • Comparison Rate: 5.56% p.a.
  • Initial Monthly Repayment: $2,964

Athena – Straight Up Investor Liberate (Principal and Interest)

  • Interest Rate: 5.29% p.a. (variable)
  • Comparison Rate: 5.21% p.a.
  • Initial Monthly Repayment: $3,008

Loans.com.au – SMSF 80

  • Interest Rate: 6.69% p.a. (variable)
  • Comparison Rate: 6.70% p.a.
  • Initial Monthly Repayment: $3,436

How to Qualify for an Investment Loan

Getting an investment loan is somewhat like applying for a home loan, but there are some differences because lenders are more cautious due to the added risks. Here's what a lender might look at when considering your application for an investment loan:

  • Borrowing Power: They'll check your expenses and your debt-to-income ratio to see if you can handle the loan.
  • Investment History: Have you managed previous investments well? This can be a plus.
  • Credit Score: They'll look at your credit history to see if you have any unpaid debts or defaults.
  • Assets and Liabilities: What do you own, and are you already in debt for education loans (HECs)?
  • Purpose of the Investment Property: Will you have tenants or plan to sell quickly (flipping)?
  • Running Costs: Are there maintenance fees, management fees, or council rates associated with the property?

Most of these factors are considered for any type of loan, but the debt-to-income ratio, running costs, and the purpose of your investment property matter most for an investment loan. Understanding and meeting these criteria can improve your chances of getting approved for one.

Fixed vs. Variable Interest Rates

When it comes to investment home loans, you'll encounter both fixed and variable interest rates, just like with other types of loans.

Fixed Interest Rates

With a fixed rate, you can lock in your interest rate for up to five years. This can be a great choice when interest rates are low. Fixed rates make budgeting easier because your repayments stay stable. However, if your lender reduces their rates, you won't benefit from the lower rates.

Variable Interest Rates

Variable rates can change as the market does. Your rate can increase or decrease based on the economy's status. While a variable rate could lead to higher repayments if rates rise, these loans often offer more flexibility.

The decision between fixed and variable rates should depend on your situation and property goals. If you prefer a stable budget, go for a fixed rate. If you want more flexibility, consider a variable rate. And if you're unsure which one suits you best, it's a good idea to talk to your lender or a mortgage broker for guidance.

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The Insider @ Houst

The Insider @ Houst

The Insider team provides up-to-date and relevant information on short-term rentals to help navigate the world of short lets. If you're interested in publishing your content, please get in touch with us at expert@houst.com.

The Insider @ Houst

The Insider @ Houst

The Insider team provides up-to-date and relevant information on short-term rentals to help navigate the world of short lets. If you're interested in publishing your content, please get in touch with us at expert@houst.com.