An investment property loan can help a borrower purchase, refinance or restructure a residential investment property. The appropriate loan structure will depend on the borrower's financial position, investment strategy, available equity and longer-term objectives.
Property investment involves financial risk. Rental income, interest rates, vacancies, property expenses and property values can change. Finance should be considered alongside appropriate tax, legal and financial advice.
Investment lending options
A broker may assist with finance for:
Investment property loans may be available for houses, units, land and other eligible property types, subject to lender requirements.
- A first residential investment property
- Expanding an existing property portfolio
- Refinancing an investment loan
- Using available equity towards another purchase
- Purchasing through an eligible trust or company
- Constructing an investment property
- Restructuring owner-occupied and investment lending
- Reviewing interest-only and principal-and-interest options
Principal and interest or interest only?
With principal-and-interest repayments, each repayment generally includes interest and a reduction of the loan balance.
With an interest-only loan, scheduled repayments generally cover interest for an agreed period without reducing the principal. This can reduce initial repayments, but the loan balance remains unchanged during the interest-only period. Repayments may increase when that period ends, and the total interest cost may be higher.
Interest-only lending is not suitable for every investor and is subject to lender eligibility and assessment criteria.
Using equity to purchase another property
Equity is the difference between a property's value and the debt secured against it. A lender may allow a borrower to access part of that equity, subject to:
Available equity does not, by itself, establish that an additional loan is affordable or appropriate.
- A satisfactory property valuation
- Maximum loan-to-value ratio requirements
- Income and repayment capacity
- Existing debts and living expenses
- The proposed use of the funds
- The lender's credit policy
Keep investment and personal borrowing clearly separated
Clear loan structuring can make it easier to identify how borrowed funds have been used. This is particularly important when a loan includes both investment and private expenditure.
The tax treatment of interest generally depends on how borrowed money is used. Private redraws or mixed-purpose borrowing may affect the portion of interest that can be claimed.
A mortgage broker does not provide tax advice. Borrowers should obtain advice from a registered tax agent or appropriately qualified adviser before making decisions based on potential taxation outcomes.
Investment loan assessment
Lenders may consider:
Different lenders may treat rental income, existing debts and property types differently. This can influence borrowing capacity and available loan options.
- Employment and other income
- Existing home and investment debts
- Living and property-related expenses
- Rental income, subject to lender adjustments
- The property type and location
- The deposit or usable equity
- The proposed repayment type
- Other financial commitments
Discuss your investment lending strategy
An experienced broker can assess the lending component of a proposed investment, explain available loan structures and help coordinate the finance application.
Speak with an investment lending broker
Speak with an experienced broker about your circumstances, available options and the next steps.
FAQs
Can I use equity in my home as an investment deposit?
Potentially. This remains subject to valuation, serviceability, credit assessment and lender requirements.
Are investment loan rates higher?
Investment and interest-only loans can be priced differently from owner-occupied principal-and-interest loans. Pricing varies by lender and product.
Is investment loan interest tax deductible?
Interest may be deductible where borrowed funds are used to produce assessable income, but eligibility depends on the circumstances. Tax advice should be obtained.
Can expected rent increase my borrowing capacity?
Lenders may include a portion of acceptable rental income, but treatment varies and the full rent may not be used.