What’s the difference between homeowner home loans and investor loans?
If you are considering buying a home, you will likely be applying for a mortgage to pay it off. However, whether you are applying for an owner-occupied or an investor mortgage will depend on what you are going to use the property for. As its name suggests, a home ownership loan is for individuals who want to buy a house to live there. On the other hand, an investor loan is for people who plan to buy a house and use it to earn rental income.
Because they serve different purposes, each type of loan has different benefits and characteristics. In general, investor loans can be more flexible in some areas than home ownership loans. Nonetheless, they can cost you a bit more with higher interest rates and fees. You may also find the more stringent eligibility criteria for investor loans because lenders see them as riskier, so lenders and regulators are more cautious. For example, you might be less likely to get approval for an investor loan with a low deposit than if you applied for a homeownership loan.
Owner-occupied mortgage or mortgage investment: features and benefits
An owner-occupied mortgage is available for people who want to buy a house to live in. If this sounds like you, you can choose from a wide variety of fixed and variable rate home loans offered by most lenders.
The loan amount that will be offered to you may differ slightly from one lender to another. However, each lender usually decides this based on common factors such as your income, debts, and current household expenses. You can use our online borrowing capacity calculator to get an idea of how much you could borrow for your new home. You can then use that figure to calculate your monthly repayments and the level of debt you can comfortably repay to work out a rough budget for your home. As part of your purchase, you’ll need to make a down payment, usually around 20% of the purchase price, to qualify for a home loan. If you don’t have a down payment saved equal to 20 percent of the purchase price, you should still be able to get a home loan but will have to pay Lender Mortgage Insurance (LMI).
If you are happy in the house you currently live in, whether you are a tenant or a homeowner, but still looking for a property, you are probably looking for investment property and will need an investor loan to finance it.
Investor loans are specifically designed for real estate investors. They include features and benefits to help you maximize return on investment. You will find that the interest rate on investor loans is generally higher than that on owner-occupied loans because lenders view investors as relatively high risk borrowers.
There are many home loan features available for homeowner and investor loans. These can include fixed or variable interest rates, clearing accounts, a redemption facility, and the ability to make additional repayments. One feature that you will find on an investor loan that you are less likely to find on an owner occupied loan is the ability to repay interest only.
Even if you find a lender who offers interest payments only on an owner-occupied loan, this will likely only be allowed under special circumstances and for a short period of time. For example, you may be allowed to make interest payments only on an owner occupied loan while you are on maternity leave.
On the other hand, you may be able to get up to 10 years of interest payments just over the life of an investment loan. Smaller repayments during this period can help you maximize your cash flow to make other investments or prioritize the mortgage on your primary residence (if you have one), which is not tax deductible like interest. an investment loan.
Still, it’s worth remembering that your repayments could increase dramatically at the end of the interest-only period, as you’ll be repaying both principal and interest.
Is it possible to use a home loan for an investment property?
Simple answer; no, you cannot use an owner-occupied mortgage to buy investment property. However, what can happen is that you decide to move and convert your property into an investment property and choose to turn your home loan into an investment loan. This can happen for several reasons. For example, you could move overseas to work or move to a larger property, but want to keep your current property as an investment. Some landlords also choose to “rent,” which involves moving into a rental property elsewhere while renting out the property they own.
If you’ve decided to change your primary residence, read your loan documents to check if there are any limitations on how you can use the property. You will likely find a clause stating that you must notify the lender and obtain their consent before leaving or renting the property. Since the risk perception associated with an investment loan is generally higher than an owner occupied loan, the lender may ask you to pay a higher interest rate or fees. Seeking the advice of a mortgage broker can help you better assess the situation.