What is the difference between owner-occupied and investor home loans?

If you're planning to buy a house, you'll most likely apply for a mortgage to pay for it. However, whether you apply for an owner-occupied or investor home loan will depend upon the purpose for which you're going to use the property. As the name implies, an owner-occupied home loan is for individuals who wish to purchase a house to live in. 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 loan type has different benefits and features. In general, investor loans may be more flexible in some areas than owner-occupied home loans. Still, they may cost you slightly more with higher interest rates and fees. You may also find the eligibility criteria more stringent for investor loans because lenders see them as riskier, therefore lenders and regulators are more conservative. For instance, you may be less likely to get approved for an investor loan with a low deposit than if you were applying for an owner-occupied home loan.

Owner-occupied vs investment mortgage: Features and benefits

An owner-occupied home loan is available to individuals who want to purchase a home to live in. If this sounds like you, you can choose from a wide range of fixed and variable rate owner-occupied home loans provided by most lenders. 

The loan amount you’ll be offered may differ slightly between lenders. However, every lender usually decides this based on common factors like your income, debts, and regular household costs. You can use our online borrowing capacity calculator to get an idea of how much you might be able to borrow for your new home. You can then use this figure to calculate your monthly repayments and the level of debt you can comfortably service to work out an approximate budget for your home. As part of your purchase, you'll be required to pay a deposit, usually about 20 per cent of the purchase price, to qualify for a home loan. If you don’t have a deposit saved equal to 20 per cent of the purchase price, you should still be able to get a home loan but will need to pay Lenders Mortgage Insurance (LMI).

If you’re happy in the home you’re currently living in, whether you rent or own, but are still in the market for a property, you’re likely looking for an investment property and will need an investor loan to finance it.

Investor loans are specifically designed for property investors. They include features and benefits to help you maximise the returns on your investment. You’ll find that the interest rate on investor loans is generally higher than owner-occupied loans, as lenders perceive investors to be relatively high-risk borrowers. 

A lot of home loan features are available for both owner-occupier and investor loans. These can include fixed or variable interest rates, offset accounts, redraw facility and the ability to make additional repayments. One feature you’ll find on an investor loan that you’re less likely to find on an owner-occupied loan is the ability to make interest-only repayments. 

Even if you find a lender that offers interest-only payments on an owner-occupied loan, it will likely only be allowed in special circumstances and for a short period. For instance, you may be allowed to make interest-only payments 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-only repayments during the life of an investment loan. Smaller repayments during this period can help you maximise your cash flow to make further investments or prioritise the mortgage on your primary residence (if you have one), which isn’t tax-deductible like the interest on an investment loan.

Still, it’s worth remembering that your repayments could jump significantly at the end of the interest-only period, as you'll also be paying off the principal and interest. 

Is it possible to use an owner-occupied home loan for an investment property?

Simple answer; no, you cannot use an owner-occupied home loan to purchase an investment property. However, what may happen is that you decide to move and convert your property to an investment property and may choose to change your home loan into an investment loan. This can happen due to several reasons. For instance, you could be moving overseas for work or upgrading to a larger property but want to keep your current one as an investment. Some homeowners also choose to "rentvest", which is moving into a rental property elsewhere while renting out the property they own.

If you've decided to change your primary residence, read through your loan documents to check whether there are any limitations on how you can use the property. You'll likely find a clause saying you need to inform the lender and seek their consent before vacating or leasing the property. As the perception of risk 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 expert advice from a mortgage broker may help you assess the situation better.

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