Why do investors pay more for a home loan?

Investor and seller hands shaking, collage.

Investing in property has amazing benefits, from rental income and tax deductions to impressive capital gains. But even a casual browse of home loans reveals that investors tend to get saddled with higher interest rates than owner-occupiers. What gives?

Let’s explore why investors often pay more for mortgages in the long-run, and what they can do to manage the costs.

Investors vs. owner-occupiers: who pays a higher mortgage?

Collage of people jumping on different coloured bars, like how homeowners and investors pay different interest rates.

If you’re considering investing in a property rather than living in it, it’s important to compare how much an investment home loan could cost you long-term. 

While interest rates will vary between products, investment home loans tend to run higher overall. Even a difference of 5-40 basis points – as seen in the table below – can significantly accumulate mortgage costs over time. 

Fig. 1: Variable interest rates comparison for home loans worth $400,000 (27 September 2022, sourced from Mozo’s database)

LoanAverageMedian
Owner Occupier, P&I4.92% p.a.4.64% p.a.
Investor, P&I5.32% p.a.4.94% p.a.
Owner Occupier, IO5.53% p.a.5.34% p.a.
Investor, IO5.59% p.a.5.24% p.a.

Plugging these different variable interest rates into Mozo’s mortgage repayment calculator can give us a clearer idea of how investor loans can add up. For instance, assuming we want to borrow up to $400,000 over 25 years, different interest rates could cost the following:

Fig. 2: Average variable interest rates comparison for investors and owner occupied home loans worth $400,000

LoanAverage Interest RateMonthly RepaymentTotal Interest Payable
Owner Occupier, P&I
4.92% p.a.$2,320$295,926
Investor, P&I5.32% p.a.$2,414$324,062
Owner Occupier, IO5.53% p.a.$2,464$339,056
Investor, IO
5.59% p.a.$2,478$343,369

This gives us a mean difference of between $4,313 - 28,136 over the life of a loan.

While rental income could in theory help cover these higher costs, that’s assuming everything goes perfectly and you have a paying tenant for the entirety of your loan. Not to mention all the other fees involved, or the potential of a property market downturn or recession

So why do investors get slapped with a higher price tag?

Why are investment home loan interest rates so much higher than owner-occupier rates?

Hands puppeteer a rising graph line, collage.

When determining interest rates for home loan products, lenders consider a borrower’s risk profile and income serviceability. Anyone perceived to be high risk or financially unstable will usually have their borrowing capacity restricted and interest rates increased, to compensate for the liability.

Unfortunately, investors are seen as incredibly risky. Ironically, this is mostly due to property investment’s biggest perk: rental income. Rent-vesting or ‘flipping’ a property can be a major source of moolah, but rental income requires a lot of factors you can't control to go right, such as market conditions and rental occupancy. Plus, you're locking your assets into one big ticket item, which can make lenders more than a little skittish. And since you’re not living in the property, what’s stopping you from abandoning ship outright when repayments become too expensive?

While these scenarios might seem far-fetched or plain ridiculous, they’re very real threats to lenders. So they jack up interest rates accordingly. 

Investors also tend to have several investments running simultaneously, which means they borrow at higher levels of leverage and may have accrued other debts. Debt in general doesn’t look fantastic on a home loan application (even your HECS debt can haunt you), so it’s important to consolidate where you can.

Just to give you an idea of how risky investments look to lenders, between 2014-2018, the Australian Prudential Regulation Authority (APRA) specifically asked lenders to limit the amount of investor loans they gave out to reduce high-risk lending and improve practices.

How can property investors reduce mortgage costs long-term?

A woman thinks about investment mortgage expenses in graph and pie chart form. Collage.

There are a few things you can do to get a better deal on your investment home loan.

  • Compare interest rates, since different lenders offer a wide range of interest rates (both fixed term and variable) for their home loan products. If you’re looking to maintain steady costs, fixed rate home loans could be the way to go, but you might miss out on savings if the lender cuts their variable interest rates later.
  • Save for a bigger deposit, which decreases your application’s loan-to-value ratio (LVR). Owning more equity from the get-go lowers your perceived risk. 
  • Have a good credit score. Reducing debts and showing that you can afford timely repayments will make your application deeply attractive to lenders. Read our guide to improving your credit score to get started.
  • Liaise with a mortgage expert, since they can help you navigate the weeds and get a better deal.
  • Research, research, research. Tracking changes in interest rates and comparing the best products on the market will give you a critical edge when looking for a home loan.

Looking to invest in real estate? Browse our investment property guides for more tips and tricks, or compare a selection of investor home loans below.

Loan details

Rate change

Repayment change if rates go up

Home loan comparisons on Mozo

Mozo may receive payment if you click the products below. We don’t compare the entire market, but you can search our database of 473 home loans.
Last updated 19 June 2024 Important disclosures and comparison rate warning*
  • Unloan Variable

    • Investment
    • LVR <80%
    Interest rate
    6.29 % p.a.
    Variable
    Comparison rate
    6.20 % p.a.
    Initial monthly repayment
    $3,092
    Go to site

    Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for investors. No application or banking fees. No monthly account keeping or early exit fees. Apply online in minutes.

  • Basic Home Loan

    • Investment
    • LVR<60%
    • Principal & Interest
    Interest rate
    6.34 % p.a.
    Variable
    Comparison rate
    6.36 % p.a.
    Initial monthly repayment
    $3,108
    Go to site

    No annual or application fees. Competitive rate tiers based on your LVR as well as interest only and split repayment options. Fast application and turnaround process. Secure online application.

  • Offset Home Loan

    • Investment
    • LVR<60%
    • Principal & Interest
    Interest rate
    6.34 % p.a.
    Variable
    Comparison rate
    6.59 % p.a.
    Initial monthly repayment
    $3,108
    Go to site

    Up to 10 offsets. Competitive rate tiers and interest only repayment option. No application fee. Split loan option. Fast, secure online application. $248 annual fee.

  • The Better Home Loan Special Offer

    • Investment
    • Principal & Interest
    • LVR <80%
    Interest rate
    6.19 % p.a.
    Variable
    Comparison rate
    6.19 % p.a.
    Initial monthly repayment
    $3,059
    Go to site

    Reap the benefits of a variable rate investor home loan with a bunch of features from Police Credit Union. Make extra repayments at any time without penalty. No monthly, annual or upfront fees. Free online redraw. 100% offset account available (T&Cs apply). Minimum 20% deposit. Qualifying criteria applies. Minimum loan amount is 200K. For new customers only. Mozo Experts Choice Home Lender Credit Union of the Year 2023.

  • Unloan Variable

    • Investment
    • LVR <80%
    Interest rate
    6.29 % p.a.
    Variable
    Comparison rate
    6.20 % p.a.
    Initial monthly repayment
    $3,092
    Go to site

    Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for investors. No application or banking fees. No monthly account keeping or early exit fees. Apply online in minutes.

  • Basic Home Loan

    • Investment
    • LVR<60%
    • Principal & Interest
    Interest rate
    6.34 % p.a.
    Variable
    Comparison rate
    6.36 % p.a.
    Initial monthly repayment
    $3,108
    Go to site

    No annual or application fees. Competitive rate tiers based on your LVR as well as interest only and split repayment options. Fast application and turnaround process. Secure online application.

  • Offset Home Loan

    • Investment
    • LVR<60%
    • Principal & Interest
    Interest rate
    6.34 % p.a.
    Variable
    Comparison rate
    6.59 % p.a.
    Initial monthly repayment
    $3,108
    Go to site

    Up to 10 offsets. Competitive rate tiers and interest only repayment option. No application fee. Split loan option. Fast, secure online application. $248 annual fee.

  • Basic Home Loan

    • Fixed
    • Investment
    • Principal & Interest
    • LVR <70%
    Interest rate
    6.55 % p.a.
    Fixed 3 years
    Comparison rate
    6.42 % p.a.
    Initial monthly repayment
    $3,177
    Go to site

    Lock in repayments from 1 to 5 years. Competitive rate tiers depending on your LVR. No application or annual fee. Fast, secure online application.

  • SMSF Home Loan

    • LVR <70%
    Interest rate
    6.99 % p.a.
    Variable
    Comparison rate
    7.00 % p.a.
    Initial monthly repayment
    $3,323
    Go to site

    Enjoy a competitive rate on your SMSF home loan with Loans.com.au. Available for refinancers only. No application fee and no settlement fee. No monthly, annual or ongoing fees. Unlimited extra repayments. Online access via Smart Money App. 30% deposit required.

image of houses

Need help with refinancing?

You might have questions that need personal answers. We’ve teamed up with the mortgage brokers at Lendi to get you the answers you need, and a home loan deal you deserve.

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* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate. You can change the loan amount and term in the input boxes at the top of this table. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

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