Securing a lower interest rate on your investment home loan can help you maximise the return on your property investment. Check out some of the lowest-rate home loans available for investors this month.
Savings.com.au has compiled snapshots of some of the lowest investment home loan rates available across various loan types:
- Variable investment home loans P&I
- Fixed investment home loans P&I
- Variable interest-only home loans
- Fixed interest-only home loans
Variable investment home loans P&I
Base criteria of: a $400,000 loan amount, variable, principal & interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. Introductory rate products were not considered for selection. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term. Rates correct as at 16 January 2020. View disclaimer.
Fixed investment home loans P&I
Base criteria of: a $400,000 loan amount, fixed, principal & interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. Introductory rate products were not considered for selection. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term. Rates correct as at 16 January 2020. View disclaimer.
Variable interest-only home loans
Base criteria of: a $400,000 loan amount, variable, interest-only (IO) home loans with an LVR (loan-to-value) ratio of at least 80%. Introductory rate products were not considered for selection. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term. Rates correct as at 16 January 2020. View disclaimer.
Fixed interest-only home loans
Base criteria of: a $400,000 loan amount, fixed, interest-only (IO) home loans with an LVR (loan-to-value) ratio of at least 80%. Introductory rate products were not considered for selection. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term. Rates correct as at 16 January 2020. View disclaimer.
The different types of home loan providers we compare
In these tables, we’ve compared home loans from:
- The big four banks
- The 10 largest customer-owned banks
- Non-bank lenders
Big four investment home loan interest rates
The big four banks – ANZ, Commonwealth Bank, NAB and Westpac – dominate the home loan market, holding around 80% of all residential mortgages. In terms of investment mortgages, the big four hold about 84% of the total investment loan books of all registered ADIs (authorised deposit-taking institutions) according to APRA. In total, nearly $500 billion of the big four’s $1.4 trillion in housing loans is dedicated to investment lending.
But there’s been a bit of push lately against banking with the big four, particularly when it comes to home loans. The main argument for this is that their interest rates are often higher than those from smaller institutions. But if you look at the tables above, you can see this isn’t necessarily true.
These loans may also require an LVR of at least 80%, which means a deposit of 20%. Borrowers who can’t afford a deposit this size may not qualify for these rates.
Customer-owned investment home loan interest rates
Customer-owned banks, also called mutual banks, are banks that aren’t run for profit like retail banks. Representatives of customer-owned banks claim that profits are passed on to members in the form of lower rates, lower fees and better features and services.
The mutual sector held combined assets of $117 billion in 2018, according to KPMG. This is about 2.5% of total assets across all deposit-taking institutions, although this number has been growing sharply in recent years. According to KPMG, the 10 biggest mutual banks by way of assets under management are:
- CUA: $15.62 billion
- Newcastle Permanent: $10.72 billion
- Heritage Bank: $9.52 billion
- People’s Choice: $8.39 billion
- Teachers Mutual Bank: $7.07 billion
- Greater Bank: $6.71 billion
- IMB: $5.91 billion
- Beyond Bank: $5.82 billion
- Bank Australia: $5.65 billion
- P&N Bank: $4.15 billion
Non-bank investment home loan interest rates
Retail banks and customer-owned banks are classed as ‘authorised deposit-taking institutions’ and are able to offer deposit accounts like savings accounts and term deposits. While non-banks cannot accept deposits, they can still offer home loans, many of which have competitive rates.
How much difference can a low interest rate make?
A low interest rate can make a big difference to your total interest costs, which is why you should endeavour to find one.
Let’s compare two interest rates: a fairly low 3.50% p.a and 4.50% p.a. That 4.50% p.a. might seem high compared to the low rates in these tables, but the reality is many people are still paying even more than this, and aren’t even aware of how much they could be saving.
The table below shows the difference in interest costs between those two interest rates over the course of a 30-year, principal and interest loan.
|Loan amount||3.50% p.a. min monthly repayment||4.50% p.a. min monthly repayment||Monthly savings at 3.50% p.a.||Total savings over 30 years at 3.50% p.a.|
Based on these calculations, that 1.00% point difference (which is a fairly sizeable one) can result in you paying hundreds of thousands less in interest over the life of the loan.
What to consider when looking for a good investment home loan
Finding a good home loan isn’t too tricky thanks to the wealth of information at your disposal, but you should still take a fair amount of time to compare a number of them by asking the following questions:
- Does it have an introductory rate? Many ‘low rate’ loans actually have introductory rates with higher revert rates
- If it’s a fixed rate, what’s the break cost? Refinancing from a fixed rate home loan can be expensive, so check the fees on the loan before committing
- What are the fees? A low advertised rate can have a high comparison rate, due to high ongoing and upfront fees
- Can you make extra or more frequent repayments? Having the flexibility to do this could help you save thousands more over the life of the loan
- Is it interest-only? Interest-only loans can be much cheaper to start with, but once the interest-only period ends repayments can skyrocket.
How does tax work on investment properties?
Unlike owner-occupied home loans, the interest component of investment home loans can be tax-deductible as an investment expense. Using the table above as an example, this would mean you’d be able to claim total deductions of up to $246,624 on that home loan with monthly repayments over 30 years (if you can remember to claim it all). For this reason, many investors choose to take out interest-only home loans, since they can completely claim the cost of their repayments as a tax deduction for the first few years.
If the expenses on your rental property (which includes loan repayments) are greater than the income you earn from it, then you can also claim negative gearing tax concessions, which allow you to offset this loss against your taxable income for that year.
Consult a registered tax agent or the Australian Taxation Office (ATO) for more information on tax on your investment property.
Savings.com.au’s two cents
A home is probably the biggest investment you’ll ever make, so why make it harder for yourself by picking a loan with a sub-par rate? Refinance to a better one or pick a good low-rate loan from the start. This page can help with that.
To keep up with the latest home loan rate changes and news, check out our home loan news page as well as our investing and refinancing hubs.
The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:
- The big four banks are: ANZ, CBA, NAB and Westpac
- The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2019. They are (in descending order): Credit Union Australia, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
- The larger non-bank lenders are those who (in 2019) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
Some providers' products may not be available in all states.
In the interests of full disclosure, Savings.com.au and loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.
*The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.
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