Investment property loans work differently from home loans

Investment home loans are usually priced higher than owner-occupied loans, and lenders assess them more strictly. Understanding why helps you plan before you compare products.

Two factors shape how much an investment purchase can realistically involve: the equity you already hold and the amount a lender will assess you can service.

Usable equity from an owner-occupied home can sometimes fund an investment deposit. Lenders look at the value of the property, the existing loan and their own lending policy before agreeing to release any of it.

Lenders typically assess investment borrowing power against your income, existing debts and living expenses, and may apply a buffer to the interest rate. Your results can differ from an owner-occupier calculation.

Working through a borrowing power estimate and repayment scenarios before you speak with a lender helps you see whether the purchase fits your cashflow.

An interest-only period reduces the repayment you make each month, which can ease cashflow in the early years. The principal stays the same during that time, so the debt is not being reduced until the period ends.

The deposit is only part of the upfront picture. Lenders' requirements, loan-to-value ratio limits and costs such as stamp duty and lenders mortgage insurance can all change how much cash you need to bring to the purchase.