How to compare and choose a home loan for property investment purposes

When you’re comparing investment property loans it’s a slightly different process to looking for an owner–occupier loan. You need to think about the following factors.

The home loan interest rate

The interest rate on your investment loan has a huge impact on the size of your repayment and, therefore, your profit margins. It’s important to find the lowest rate that comes with the features you need, as well as attractive fees. You should look at both fixed and variable rates, as well as lenders outside the Big Four.

Are you eligible for an investment loan?

With even the best investment loan deals, there may be restrictions. For example, not all loans are available for commercial properties and some loans may have a square metre age limit. Other loans may not be available for certain residential property types, like inner–city apartments.

The benefits of a property investment home loan

You’re investing in a property to make a profit, so you need to make the most of your tax benefits and your cash flow. Look for features like 100 per cent offset accounts, interest–only deals and interest–in–advance deals.

What is the home loan fee structure?

Don’t automatically dismiss an investment mortgage just because there are ongoing or application fees. Some fees are worth paying because they give you access to redraw facilities, or allow you to make overpayments which in the long run will reduce your spending on interest.

What extra home loan features do I need?

If you want to make overpayments, look for a deal that lets you do this without penalising you. Similarly, if you need to access these overpayments, a redraw facility is important.

How are investor mortgages different to owner–occupier (OO) mortgages?

Even the best lenders for landlords see investment mortgages as higher risk than OO loans. As a result, they have stricter requirements and borrowing limits, as well as higher interest rates. You may also have to put down a higher deposit to start with.

How to test your eligibility for an investor mortgage

First you need to convince your chosen lender that you can afford to repay the loan, with or without rental income.

To help you to do this, have a deposit of at least 20 to 30 per cent ready, as well as lots of evidence of your income. A business plan for the property will also help, so the lender can see how much you’ll make from your investment, and you should also look at your credit score, repairing anything that’s a potential problem.

Finding the right property is also important. If you’re looking at a tiny apartment in an already overcrowded city, then your lender might worry about you finding tenants. You can sometimes overcome this reluctance with a bigger deposit.

You need to convince the lender that your property will appreciate in value.

What can I do to maximise my property investment returns?

Property investment has a few tricks you can use to make more profits.

Use negative gearing

If you’re planning to renovate the property before letting it, then you’ll probably be spending more than you earn. The Australian Tax Office lets you write this loss as a tax deduction and it’s a handy way to recoup some of those losses while you’re waiting for tenants or a capital gain.

Buy and hold

This is really easy and you do what it says on the tin – buy the property and wait for its value to rise; alongside negative gearing, this can be a good earner. You can move things along by renovating, too.

Renovate the place