If you’re comparing home loans and investment loans side by side, you’ll notice a persistent gap in interest rates. Investment property loan rates in Australia are consistently higher than owner-occupier rates — and understanding why this gap exists, how large it typically is, and how to minimise it can save you thousands of dollars per year.
Why Are Investment Property Loan Rates Higher?
Lenders charge more for investment loans because they perceive them as higher risk. When a borrower is in financial difficulty, they are far more likely to keep paying the mortgage on the home they live in before protecting an investment property. Rental income can also be interrupted — a period of vacancy or a non-paying tenant creates cash flow risk that doesn’t exist with an owner-occupied property.
APRA (the Australian Prudential Regulation Authority) also plays a role. It has historically imposed restrictions on investment lending growth to cool overheated property markets, and lenders are required to hold more capital against investment loans. These regulatory costs flow through to borrowers via higher rates.
How Much Higher Are Investment Rates?
The rate differential between investment loans and owner-occupier loans typically ranges from 0.3% to 0.6% per annum, though it can be higher depending on the loan type (interest-only vs P&I) and the lender.
| Loan Type | Typical Owner-Occupier Rate | Typical Investment Rate | Difference |
|---|---|---|---|
| Variable P&I | ~5.8% – 6.2% | ~6.1% – 6.5% | ~0.3% |
| Variable Interest-Only | ~6.2% – 6.6% | ~6.5% – 7.0% | ~0.4% – 0.5% |
| Fixed 2yr P&I | ~5.9% – 6.3% | ~6.2% – 6.6% | ~0.3% – 0.4% |
| Fixed 2yr Interest-Only | ~6.3% – 6.7% | ~6.6% – 7.1% | ~0.4% – 0.5% |
The Real Dollar Impact
It’s easy to dismiss a 0.5% rate difference as small, but on a $700,000 investment loan it equates to $3,500 per year in additional interest — or $105,000 over a 30-year loan term. Across a portfolio of two or three properties, the difference is even more significant.
This is why securing the most competitive investment rate available — rather than accepting the first offer from your bank — is one of the highest-return activities a property investor can undertake.
Interest-Only vs Principal and Interest: The Rate Gap Within Investment Loans
Within investment lending, there is also a rate premium for interest-only (IO) loans compared to principal and interest (P&I) loans. IO investment loans typically carry rates 0.2% to 0.5% higher than P&I investment loans from the same lender.
Despite the higher rate, interest-only loans remain popular with investors because:
- Lower repayments preserve cash flow for additional investments
- The interest component is fully tax-deductible (for genuine investment purposes)
- Investors focused on capital growth may not wish to reduce the loan balance
The decision between IO and P&I is as much a tax and cash flow strategy as it is a rate decision. Always get advice from your accountant before choosing.
How to Get a Better Investment Rate
The investment rate you’re offered depends on more than just being a “good borrower.” Lenders price risk based on a range of factors:
- Loan-to-Value Ratio (LVR) — borrowing at 70% LVR typically attracts a lower rate than 90% LVR. A larger deposit or more equity means less risk for the lender.
- Loan size — larger loans often qualify for better rate tiers with some lenders
- Repayment type — P&I loans attract lower rates than interest-only
- Borrower profile — PAYG income, stable employment, and a clean credit history all help
- Lender selection — rates vary enormously between the big four banks, tier-two banks, and non-bank lenders
The most effective way to improve your investment loan rate is to compare across multiple lenders simultaneously. A mortgage broker does this as a matter of course — and because they access wholesale rates, the rate you receive through a broker can often beat what you’d be offered walking directly into a bank.
When to Refinance Your Investment Loan
If you took out your investment loan more than two years ago, there’s a reasonable chance a better rate is available. The Australian lending market is competitive and lenders regularly sharpen their pricing to attract new business — loyalty rarely pays. A rate review every 24–36 months is good practice.
Watch for the “revert rate” trap: some lenders offer discounted introductory rates that revert to a much higher standard variable rate after a fixed period. Refinancing before this revert kicks in can deliver significant savings.
Talk to an Investment Finance Specialist
At Tenfold Property Finance, we compare investment property loan rates across 30+ lenders to find the most competitive option for your specific situation. Whether you’re buying your first investment property or reviewing your existing portfolio, we can help.
Back to: The Ultimate Guide to Investment Property Loans in Australia