What's the difference between owner occupier and investment home loans?
Most people looking to buy property will encounter two types of home loans: owner-occupier and investment property loans.
As you might be able to tell from the clues in their names, one is a live-in home loan (owner-occupier) and the other is suited for those who will be renting their property out (investment loan).
But aside from that distinction, what are the real differences between the two?
What is an owner occupied home loan?
Owner-occupied home loans (sometimes called a live-in home loan) are for those looking to purchase a home they intend to live in. They sit at the other end of the spectrum from investment property home loans.
If you're intending to purchase a house to live in, then owner-occupier home loans allow you to borrow the money you need. You’ll then need to repay the loan over a set period of time, in instalments known as ‘repayments’.
Home loan repayments are calculated based on interest rates. Unless you secure a fixed rate of interest, if a lender’s rate goes up then your repayments will rise too. So, make sure you keep on top of the latest home loan interest rates.
Owner-occupied home loans are best suited to those who are looking to purchase a home to live in, but are also available to those who want to purchase a holiday house (as long as it won’t be rented out), and to those who are purchasing land to build their home on.
Key features of owner-occupied home loans
Owner-occupied home loans may come with features such as:
- An offset account
- The ability to make extra repayments
- A redraw facility
- A line of credit facility
- Lower fees than investment home loans.
What is an investment property loan?
Investment property home loans are for those who do not intend to live in their property. Rather, this type of home loan is most often used by those who want to rent it out as a source of income.
Like owner occupied home loans, you will need to pay back the money you borrowed, plus interest.
The interest rates for investor home loans are often charged at a higher rate than owner-occupier loans, due to property investors being perceived as higher risk.
When searching for an investment home loan, or if you’re considering refinancing, make sure you compare the latest rates to find one that works for you and your property.
Key features of investment loans
When looking for an investment home loan, keep an eye out for features like:
- Interest-only loans
- Repayment holiday options
- Offset accounts
- Low fees
- A line of credit facility
- Option to revalue your property (increase your equity).
Can you switch from an owner-occupied to an investment property loan?
Yes, you can turn your home loan into an investment loan if you’re intending to rent it out.
You will need to notify your lender of the change and switch your loan product to an investment property loan.
This may change the interest rate you are charged to a higher rate, but if you’ve been with the lender a while you may be able to negotiate for a better deal, or even compare investment loan rates to see if you can refinance your home loan when you switch.
If you switch your loan from owner occupier to investor, you may lose the features associated with your home loan, like offset accounts and redraw facilities. But, there may be new features available to you as an investment property owner.
