Getting a loan for an investment property

couple checking out a property investment

 Estimated read time: 5 Minutes

Thinking of buying an investment property? Finding an investment property loan that meets your goals could help set you up for investment success.

Whether you’re thinking of dipping a toe into the property investment pool or looking to grow your well-established investment portfolio, you may need an investment property home loan. The following article looks at investment loans, how they work and how to apply for one. 


What is an investment property loan?

An investment property loan is a home loan you take out when you want to invest in property . An investment home loan has similar features to an owner-occupier home loan, but there are a few important differences.  


How do investment property loans work?

If you already have a mortgage for the home you live in, you’ll know the basics of how it works. An investment property loan is similar to a residential home loan - you borrow a sum of money and pay back the loan amount and interest in regular instalments over a chosen time period.

However, buying an investment property may be riskier than buying a home to live in, for example:

If it’s vacant for any reason, you won’t get any rental income although you will still need to pay the investment property loan repayments.
There could be an increased risk of tenant damage to the property.
You’ll have regular maintenance and repair costs to deal with whether the property is tenanted or not. 

You may want to talk to your broker or lender about deposit requirements and whether  a larger deposit means that you could benefit from a lower interest rate. 

Just like a standard residential home loan, there are different types of investment home loans. You can choose from:

Fixed or variable rate

A fixed interest rate is where you lock in a set interest rate for a time period – usually one  to five years, but some lenders may offer longer terms. A variable interest rate is where your home loan rate can increase or decrease over a home loan’s term. Common reasons for variable interest rates to change are factors like changes to the official RBA cash rate changing and/or your lender’s funding costs. If you can’t make up your mind, some (but not all) lenders provide the option to split an investment property loan so a portion of the loan amount is fixed and the rest is variable.

Interest-only or principal and interest:

With an interest-only investment loan you only pay the interest on your loan – the principal amount you have borrowed isn’t paid off and remains payable when the interest only period ends over the remainder of the loan term. With a principal and interest loan you pay off both the loan balance and the interest over the entire term of the loan.

Different investment loan types will work for different people and circumstances. We’re happy to talk discuss options so you can decide what’s best for you. 


How do I get an investment property loan?

You can get an investment home loan from your bank, or a non-bank lender such as Pepper Money.

Property is a big investment, so it’s worth comparing a few options. It could be a good idea to consider a lender who understands the needs of property investors, and can give you loan options which could suit your needs. Securing conditional approval beforehand can help you start your investment property journey and help you  negotiate an offer on an investment opportunity.

At Pepper Money, we can provide a credit decision within 2 business days, so you won’t be left waiting. We’re also flexible – we’ll do our best to give you options, if we can, rather than an outright no. Whatever your situation, we’re here to help.


Can I use the equity in my home to buy an investment property?

If you’ve built up some equity in your own home, you may choose to put that towards your investment property rather than having to do all the hard yards and save up the full deposit amount.

If you’re interested in doing this, you’ll need to know how much ‘usable’ equity you have on your existing home loan.

For example, let’s say your home is valued at $800,000 and you still owe $500,000 on your mortgage.

Your equity is $300,000. Typically, not all of this can be put towards a deposit, only a portion known as  usable equity can be utilised and is based on the loan to value ratio of your home. Commonly, lenders use a loan to value ratio (LVR)  of 80% to calculate usable equity, although a lower LVR may be commonplace for investment loans.

In this example 80% of the value of the home is $640,000, so your usable equity is $640,000 - $500,000 = $140,000.

You can put this $140,000 towards a deposit on an investment property, as well as to cover stamp duty and other fees such as settlement fees.

Do I qualify for an investment property loan?

Like any other loan, you are likely to need to show evidence of your income, expenses, savings and credit history – through these may not all be required for certain lenders. Your lender will also look at your assets including other property you own, and your debts and liabilities – like credit cards, car loans and any other loans you have.

If you have a less than perfect credit history (e.g. late payments, defaults), your income fluctuates, or you want to combine multiple properties as security, then you may not be eligible for an investment loan with some lenders. But you don’t necessarily need to wave farewell to your dream of property investment as some lenders may have a more flexible approach.

At Pepper Money, we take a flexible approach to credit assessment. We know real-life doesn’t fit into neat little boxes. We’ll take the time to understand the story behind your application – then we’ll do our best to look for a solution that suits you. 


Ready to grow your investment portfolio?

Before you start, it’s a good idea to do your research to make sure property investment is right for you. Consult a financial adviser, crunch the numbers and get clear on your financial goals. Once you’re ready, find a mortgage broker or you can check out our Pepper Money home loan or speak to one of our lending specialists.  


Apply for a Pepper Money Home Loan

Want to find out where you stand?

We've got the online tools and calculators to help get your home loan journey underway. Work out how much you may be able to borrow and even quickly find out what indicative interest rate you might be eligible for.

Information provided is factual information only and is not intended to imply any recommendation about any financial product(s) or constitute tax advice. If you require financial or tax advice you should consult a licensed financial or tax adviser.

All applications are subject to credit assessment, eligibility criteria and lending limits. Terms, conditions, fees and charges apply. 

The results of the borrowing power calculator are based on information you have provided and is to be used as a guide only. The output of the calculator is subject to the assumptions provided in the calculator (see 'about this calculator') and are subject to change. It does not constitute a quote, pre-qualification, approval for credit or an offer for credit and you should not enter commitments based on it. The interest rates do not reflect true interest rates and the formula used for the purpose of calculating estimated borrowing power is based on the assumption that interest rates remain constant for the chosen loan term. Your borrowing power amount will be different if a full application is submitted and we complete responsible lending assessment. The results in the calculator do not take into account loan setup or establishment fees nor government, statutory or lenders fees, which may be applicable from time to time. Calculator by Widgetworks.

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