Can you change your home loan to an investment loan?

There are a few different scenarios where you might choose to turn your owner-occupied home into an investment property, including:

• Moving back in with parents or other family while you rent out your former home
• Moving into a rental property elsewhere while you rent out your former home (“rentvesting”)
• Buying a new home to live in while you rent out your former home
• Moving interstate or overseas for work while you rent out your former home 

Mortgage lenders offer different types of home loans to owner occupiers and to property investors. Buying a home to live in is different from buying an investment property, and comes with a different type of risk for the lender.

Changing your property from an owner-occupied home to a tenanted investment may require refinancing your mortgage. But what steps would you need to take to turn your owner-occupied home loan into an investment loan?

Check the fine print and inform your lender

Read through the loan documents, terms and conditions from when you first signed up for your mortgage for any limitations or restrictions on how you can use your property. You may find that if you applied for an owner-occupier home loan, you may be required to inform the lender and seek their consent if you intend to vacate and/or lease your property.

Because of the different risk involved with an investment property loan compared to an owner-occupied home loan, your lender may require you to pay a higher interest rate and/or fees, or provide additional security to turn your owner occupied loan into an investment loan.

If combing through the fine print and legalese is giving you a headache, or if you’re not sure of the best option for your situation, a mortgage broker may be able to help work out your next move. 

Do you need to refinance?

Switching from an owner-occupier home loan to an investor home loan may involve refinancing your current mortgage. Refinancing effectively ends one home loan and starts an all-new home loan that should better suit your needs. The process is similar to applying for a new home loan, only using your equity in the property instead of a deposit. 

While it’s possible to refinance with your current lender, many Australians look at switching to an alternative mortgage provider when they refinance to access affordable interest rates, or more useful features and benefits.

Whichever lender you choose, refinancing could offer the options to make other changes to your home loan, such as switching to a longer loan term, or borrowing more money by accessing your equity in the property. Keep in mind that while these options can be helpful in the short term, you could end up paying more in the long term.

Consider the tax implications

While an owner-occupier may be exempt from many taxes on their principal place of residence (PPOR), a property investor may have a range of extra tax considerations to think about.

For example, depending on the income received from the property compared to the cost of its maintenance, your property could be positively or negatively geared. This could affect your total taxable income for the financial year.

There’s also Capital Gains Tax (CGT) to consider if you choose to sell your property. While CGT typically doesn’t apply when you sell your PPOR, you may need to consider it if you sell an investment property. You may want to keep the “six year rule” in mind, where you can treat the dwelling as your main residence for up to six years if it is used to produce income, before having to consider CGT if you choose to sell.

Remember that tax rules are complex and can change from year to year. Consider contacting the ATO and/or a tax accountant before making any decisions that could affect your taxes.

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