Investment properties are recognised by many as a versatile investment strategy that can help to grow your wealth well into the future.
If you take the time to select the right property and home loan, investment properties can help bring in a stream of passive income and provide the platform for you to plan for your retirement or financial freedom.
Explore our market-leading range of mortgage options, rates and features:
Star Classic
Variable principal & interest
6.55%
Interest rate p.a.1
6.58%
Comparison rate p.a.1,2
Star Classic
Variable interest only
6.95%
Interest rate p.a.1
7.03%
Comparison rate p.a.1,2
Star Classic Fixed
Fixed principal & interest
7.35%
Interest rate p.a.1
7.01%
Comparison rate p.a.1,2
| Fees | Star Classic Investment Variable Rate |
Star Classic Investment Fixed Rate |
Star Classic Owner Occupied Construction |
| Principal & Interest | Principal & Interest | ||
| Application Fee | $0 | $0 | Refer to the fees located on the Construction page |
| Annual / Monthly Account Fee | $0 | $0 | |
| Valuation Fee (per property up to $1m) | $0 | $0 | |
| Legal Preparation Fee | $0 | $0 | |
| Fixed Rate Lock in Fee (optional) | $0 | $4953,4 | |
| Settlement fee | $3953,4 | $3953,4 | |
| PEXA Fee | $66.333,4 | $66.333,4 | |
| Government Charges | At Cost3,4 | At Cost3,4 | |
| Disbursements (including title search fees) | $1503,4 | $1503,4 | |
| Discharge Fee | $5355 | $5355 |
Homestar Finance has been providing Australians with competitive and customer-focused home loan solutions since 2004.
Our dedicated team of loan specialists are there to support you through your home loan journey, and take the time to get to know you so we can offer our customers a personalised service – making it easy to find a home loan solution that suits you.
Investor Home Loan
Home Lender
Variable Home Lender
Variable Home Lender
Investment Variable Home Lender
Investment Variable Home Lender
A property investment loan generally works in the same way as a standard home loan. They allow you to borrow money for the purchase of property including land, building contracts, houses, apartments, as well as commercial property.
Although, you should keep in mind that these home loans may differ slightly in qualifying criteria and financial requirements compared to a mortgage for a house you intend to live in. This is partly because an investment loan takes into account the additional income generated by the property when assessing your ability to meet principal and interest repayments.
Though this may sound like a benefit, the unpredictable profitability of investment properties may work against you if you will be heavily reliant on rental income from the property to meet your debt obligations. This means that unless you have the ability to make home loan repayments with little or no dependence on passive income, it can be difficult to nail down an investment home loan.
Moreover, since the borrower has less of a stake in the investment property compared to their own place of residence, lenders generally consider investment loans as a higher risk. For these reasons, investment property loans often have stricter lending criteria and higher interest rates compared to typical home loans.
However, if you have the financial capacity to access an investment property loan, it can be a great way to make some income on the side and eventually sell for a profit.
The structure of your investment home loan is hugely important for you to be able to leverage eligible tax deductions on your investment property. Australian tax laws are known to be quite advantageous for property investors, so it’s essential that your loan structure is set out accordingly to take full advantage.
Choosing the optimal interest rate for your financial situation is imperative to setting up the best possible home loan structure for an investment property. There are pros and cons tied to both fixed rate loans and variable rate loans, including:
Fixed rate home loans are characterised by a stable interest rate that is agreed upon between you and your lender at the start of your home loan. This means that your monthly repayments won’t fluctuate and can help you plan your finances and budget more efficiently as opposed to a variable rate home loan.
However, fixed rate offers little in terms of flexibility, since there is a fixed rate period in which you cannot refinance or change your loan structure and you won’t be able to make any additional repayments to settle your mortgage faster. That’s why most people opt to leverage fixed rate loans only during times where interest rates are uncharacteristically low.
Variable rate home loans on the other hand, offer much more flexibility when it comes to repayments and additional features such as offset accounts. For this reason, variable rate loans are generally preferred by property investors.
However, planning and budgeting is typically difficult since you are at the mercy of fluctuating interest rates. Although, this does mean that if interest rates were to fall, you would be able to capitalise on the market situation.
When it comes to putting down a deposit, there is often a common misconception that you should look to put down as much as you can. Although minimising your Loan to Value Ratio (LVR) is highly preferred when it comes to taking out a personal mortgage, for investment properties you want to maximise debt because it is technically tax-deductible.
That’s why ideally, you should look to borrow the maximum possible amount, since you can easily put the rest of the funds into an offset account and move them around when necessary. For most situations, the maximum amount will work out to be around 80% of the property value.
For instance, let’s say you have $300,000 readily available to purchase an investment property. In this case, if you were to put down a $140,000 deposit (20%) on a $700,000 home and store the remaining $160,000 in an offset account, you would be charged the same interest as if you were to put down a $300,000 deposit and you would also have readily available cash for emergencies, rather than having it tied up in a non-liquid asset.
If you’re having trouble with working out deposit figures, be sure to consult our guide on home loan deposits for a comprehensive breakdown of how much you need for specific situations.
An offset account is technically an everyday transaction account that is linked to your home loan. Just like a typical bank account, you can deposit or withdraw money to and from this account at any time. However, the balance is offset against the outstanding value of your loan.
By utilising an offset account, you will only be charged interest on the difference between your total loan amount and the balance of your account. At the same time, an offset account allows you to access your cash when you need it. Whereas if you were to put down a large deposit and your financial situation were to change or you were to take out another loan later, you would not be able to access the cash you put down.
Although you can still access money put into your mortgage via a cash out refinance, having an offset account allows you to easily move around your cash without any dramas. If you’re curious to see how much an offset account may save you in the long run, head over to our home loan offset calculator and run the numbers.
Before you rush out to compare market rates, you will need to know which investment loan types are available to you as a property investor. Unlike your typical home loan, investment property loans are usually restricted to two main types.
We will look to break down the most common loan types and examine whether or not you can make use of them.
Principal & interest loan for investment property
By taking out a principal and interest loan, you end up paying interest on top of the original amount borrowed over a fixed-term time frame which usually ends up being around 30 years.
The main benefit of a principal and interest loan is that your interest repayments will reduce over time since you are simultaneously paying off the balance of the loan as you go. However, the main downside is that your tax-deductible expenses will also decrease as a result.
Interest only loan for investment property
Conversely, by taking out an interest only loan, there is a fixed period or loan term where you pay off only the interest. Though the duration of this period will vary across different lenders and loan options, it’s typically around 5 years. Once this period is over, your loan will convert into a principal and interest loan.
Since the amount owed on the actual mortgage does not change for the duration of the fixed period, you will be able to consistently claim the maximum amount of interest as a tax deduction.
Once the period of your IO loan is complete, your IO loan becomes a P+I loan. Then you begin to pay for your mortgage and interest together.
The mortgage amount remains unchanged over the time you are paying the interest only.
Provided that interest rates remain the same, you can consistently claim the maximum amount of interest of an IO loan as a tax deduction, whilst keeping the excess money you would have paid toward the principal amount in your offset account.
Although interest only loans can take longer to pay off, they are typically the favoured option for those investing in property.
The process of getting a loan for an investment property is not much different to a residential property. The steps involved can be broken down into 5 relatively straightforward steps:
Just like a residential mortgage, refinancing can help you to leverage more favourable rates and better features since you’re going to become less risky for lenders as time goes on. If you are under contract in a fixed rate loan and still within the fixed period, it may not be the best idea to refinance since you will have to pay exorbitant amounts in break fees and exit costs.
Ideally, if you have the financial capability, you’ll want to refinance to a variable rate loan to make use of offset accounts. One common strategy among property investors is to utilise a cash out refinance and release as much equity as possible when interest rates are low and reinvest those funds into an offset account or other investment opportunities. Moreover, you can even utilise a cash out refinance or a loan top-up to fund the deposit for another investment property.
If you are curious about how refinancing can help, make sure you take a look at our home loan refinance guide to examine what options are available to you and to work out the right time to refinance.
It’s always good practice to work out the numbers before getting stuck into any contracts. Getting a clear picture of the initial out-of-pocket expenses such as stamp duty and planning your budget in advance can help you to avoid any nasty surprises along the way.
Homestar has a plethora of home loan related calculators to make that overwhelming first step just a little bit easier.
Other than your own financial circumstances and loan structure, your priority considerations should be looking at how you can make the most of tax benefits associated with property investment.
There are a myriad of tax deductions you can claim as part of outgoing investment property expenses, including:
Of these, the three most significant deductions you need to be aware of are loan interest, negative gearing and capital gains tax.
Whilst it isn’t possible to receive tax exemptions for the principal amount of the loan, it is possible to claim deductions for interest accrued over the duration of your loan as a tax-deductible expense.
This is why a popular strategy among savvy investors is to sign up for an interest-only home loan so you can leverage interest repayments to your advantage. This way, all of the loan repayments during the initial interest only period will be eligible for tax deductions and this can greatly help with your cash flow in the short term.
In layman’s terms, negative gearing is a method of writing off your losses by deducting them from your taxes at the end of the financial year.
If your overall expenses surpass your total income earned from the investment property, you will be eligible for negative gearing tax deductions.
Although negative gearing may seem confusing or redundant at first, it is a highly effective method of minimising short-term expenses before you eventually sell. By writing off these losses on tax, you can make use of negative gearing strategies to offset the capital gains tax and maximise your return on investment when you eventually sell the property on for a profit.
The capital gains tax is a tax imposed on profits made from selling high value assets including shares, a business or property.
Capital gains tax can strip you of a large portion of your profit, since 100% of the profit from the sale is added to your taxable income. However, if the investment property has been held under your name for more than 12 months, then only 50% of the profit will be added toward your assessable income.
That’s why negative gearing can help you hold on to the property for at least 12 months whilst minimising short-term losses and in turn, allowing you to pocket more of the profit.
Rental yield refers to the difference between the income made from leasing and the overall cost of your investment property expressed as a percentage.
For instance, if your rental yield is not enough to cover mortgage and interest repayments then your property is negatively geared.
Your home loan pre-approval application can be done completely online via our form with no paperwork involved! The form takes only 5 minutes to complete, and you can save your progress and finish at any time.
Talk to us about your home loan needs and we will package up a home loan with the features you want and tailor the rate to your circumstance.
1 Rates shown apply to new eligible Investment loans only, loan limits may apply depending on your product (refer to the product page) and at least one applicant is on PAYG employment. For fixed rate loans, after the fixed rate term, a variable rate will apply. Rates are subject to change without notice. Existing borrowers may have different interest rates which are dependent on the rate offered to the borrower at the date when a home loan settled and any reductions or increases the lender decided to make on the existing loan over time. Accordingly, there is not one standard variable rate that applies to all Homestar home loans and existing customers can confirm their current rate(s) by logging in to internet banking or by contacting customer service. Terms, conditions, and eligibility criteria apply.
2 Comparison rates are based on a basic Homestar loan, on a $150,000 loan amount over 25 years. WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.
3Third party cost(s) incurred by service provider(s) are payable and may vary or increase depending on the service provider, nature of the service and request. Any additional cost(s) are passed on directly to the applicants(s). If there is a variation or an increase, a separate quote will be provided.
4Disbursements payable.
5Discharge fee is waived if loan reaches full term as per the loan agreement.
Other fees and charges may apply.
DISCLAIMER: Terms, conditions and eligibility criteria apply to all our loan products and features. Fees, charges and disbursements are payable. Final approval is subject to credit assessment. Information valid as at 15th November 2023 which is subject to change without notice. Please consider if the product is appropriate for your individual circumstances. If you need assistance or have any questions about a product or feature and its suitability, please contact our Loan Specialists.
Ⓡ Registered to BPAY Pty Ltd ABN 69 079 137 518
Sales support
salessupport@homestarfinance.com.au
Let's talk
1300 462 209
Customer service
service@homestarfinance.com.au
2023 Copyright Homestar Finance Pty Ltd (ACN: 109 413 498) Australian Credit License Number 390 860
