Preparing financially
How an investment loan differs from a home loan
Rate, interest-only prevalence, how rental income is assessed, and the tax treatment differences between an investment and an owner-occupier home loan.
- Investment loans commonly carry a rate around 0.2 to 0.6 percentage points higher, and interest-only is more common.
- Lenders typically count only a discounted percentage of expected rental income in serviceability.
- Deposit and LVR work the same way as an owner-occupier loan, though some lenders price investment loans more conservatively.
- Investment loan interest is generally tax-deductible; owner-occupier home loan interest is not — get specific tax advice.
- If your intended use of the property might change later, you're required to notify your lender.
Rate and repayment structure
Investment loans commonly carry a higher interest rate than an equivalent owner-occupier loan — commonly around 0.2 to 0.6 percentage points higher, though this varies by lender and product, so ask for a specific comparison rather than assuming a fixed figure — and interest-only repayments are more common on investment loans, often to maximise cash flow and potential tax-deductible interest, rather than to reduce the principal, which an owner-occupier is more commonly focused on. Neither difference is universal across every lender and product.
How serviceability differs
Lenders typically include expected rental income in a serviceability assessment for an investment purchase, but — consistent with the income-shading practice covered in the serviceability guide — usually count only a percentage of it (commonly discounting for vacancy and management costs), not the full amount. Existing investment debts and their own rental income are also factored in if you already hold other investment properties.
Deposit and LVR
Deposit and LVR mechanics work the same way as an owner-occupier loan (see the deposit guide), though some lenders apply slightly more conservative LVR limits or pricing for investment loans specifically, reflecting their own risk assessment of investment lending as a category.
Tax treatment
Interest on an investment loan is generally tax-deductible to the extent the loan funds the income-producing property — a meaningfully different tax position from an owner-occupied home loan, where interest is not deductible. This is general education, not tax advice — how a specific loan structure (including refinancing, redraw, or splitting funds for mixed purposes) affects deductibility is a question for a registered tax agent, ideally before you structure the loan.
If your intended use changes later
If you move out of a home you bought as an owner-occupier and rent it out — or move into a property that was previously an investment — you're required to notify your lender. Lenders treat this as a formal loan purpose change, not a detail to sort out later: it can affect your rate and terms, and not notifying them can breach your loan agreement, with consequences ranging from penalties and a higher rate to the lender recalling the loan in serious cases.
Practical checklist
Before choosing an investment loan structure
- Compare investment loan rates and features against an owner-occupier loan for context
- Ask how much of the expected rental income will actually be counted in serviceability
- Get advice from a registered tax agent on interest deductibility before structuring the loan
- Avoid mixing investment and personal loan funds without tax advice
- If your intended use of the property might change later, understand your obligation to notify your lender
Questions for a professional
- How much of the expected rental income will you count toward my serviceability?
- How would you recommend structuring this loan to keep the interest cleanly deductible?