Loan Essentials
December 2025
Most people don’t realise that the type of property loan you choose can change everything from your interest rate and deposit size to how lenders assess your income.
If you’re comparing home loans vs investment loans, it can feel like the differences are small, but they have big long-term effects on your finances.
In this guide, we’ll break down exactly how the two loan types differ, what that means for your repayments and borrowing power, and which option may suit your goals.
By the end, you’ll understand every key difference clearly and know how to make a decision that supports your financial future.
A home loan is for a property you live in, while an investment loan is for a property you rent out or hold to make a profit.
Because the purpose of the loan changes, lenders apply different rules for rates, deposits, and approval.
Home loans usually attract lower interest rates and smaller deposits.
Investment loans typically have higher rates, stricter criteria, and may allow interest-only repayments for cash flow flexibility.
But there are a number of nuances that you need to consider before choosing which loan type is right for you.
| Feature | Home Loan (Owner-Occupied) | Investment Loan |
| Purpose | You buy and live in the property. | You buy to rent out or build wealth. |
| Interest Rate | Lower, due to lower risk for the lender. | Slightly higher, as investor loans are seen as riskier. |
| Repayment Type | Usually Principal and Interest, helping reduce your debt faster. | Often Interest-Only, to keep repayments lower and support cash flow. |
| Deposit Required | Can be as low as 5–10% with Lenders Mortgage Insurance (LMI). | Commonly 10–20%, sometimes more for riskier locations or property types. |
| Borrowing Capacity | Based only on your personal income and debts. | May include potential rental income, but lenders discount it by 20–30%. |
| Tax Treatment | No deductions on home loan interest or expenses. | Loan interest, property expenses, and depreciation may be deductible (seek advice). |
| Loan Policy & Eligibility | Generally easier approval and wider lender choice. | Tighter criteria and more scrutiny of income, assets, and experience. |
| Loan-to-Value Ratio (LVR) | Can go up to 95% with LMI approval. | Usually capped at 80–90%, depending on lender and property type. |
| Equity Access | Easier to release equity for renovations or upgrades. | Equity release is often limited or capped for further investing. |
| Rate Discounts & Incentives | May qualify for first-home or loyalty discounts. | Fewer promotional offers and cashback deals are available. |
| Repayment Flexibility | Often includes features like offset, redraw, and repayment holidays. | Some features are restricted or come with additional fees. |
| Fees and Costs | Standard application and ongoing fees. | Slightly higher setup or risk-based fees in some cases. |
| Lender Risk Weighting (behind the scenes) | Considered lower risk, giving banks capital relief. | Attracts higher risk weighting under APRA guidelines, leading to higher rates. |
| Assessment Rate (Serviceability Buffer) | Lower buffer, making it easier to qualify. | Higher buffer applied by lenders to account for market risk. |
| Loan Term Options | Typically 25–30 years. | Often shorter interest-only periods (e.g., 5 years) before switching to principal and interest. |
| Property Type Restrictions | Broader acceptance of all property types. | Some lenders restrict certain property types (e.g., studios, dual key, NRAS). |
| Long-Term Goal | Build home ownership and financial security. | Build passive income and capital growth through property. |
Lenders charge a higher interest rate for investment loans because they see them as higher risk.
If you live in your property, you’re more likely to prioritise your repayments.
But if it’s an investment, changes in rent, vacancies, or expenses can affect your ability to pay on time.
Below is a table comparing the interest cost over a 30-year loan.
It shows a 0.5% rate difference, which might sound small, but it adds up to nearly $94,000 extra interest over the life of the loan, or $260 more per month.
| Loan Type | Loan Amount | Interest Rate | Monthly Repayment (P&I) | Interest Cost Over 30 Years |
| Home Loan | $600,000 | 6.10% | $3,636 | $709,000 |
| Investment Loan | $600,000 | 6.60% | $3,832 | $779,000 |
That’s why it’s important to look beyond the rate itself and understand how your loan structure, features, and repayment type can make a far bigger difference to your long-term results.
Offset and redraw features can make a big difference to how much interest you pay and how flexible your loan feels.
Both are available for home loans and investment loans, but how you use them and the outcomes can be very different.
Many borrowers don’t realise how powerful these features can be when used strategically.
A Smartfinn broker can show you how to set up offsets or redraws to suit your exact goals.
Whether that’s paying less interest or managing your investment cash flow effectively.
| Offset Account | Redraw Facility |
An offset account is a transaction account linked to your loan. The balance in the account reduces the interest you pay because the lender only charges interest on the loan amount minus the money sitting in your offset. Example: If you have an $800,000 loan and $40,000 in your offset, you’re only charged interest on $760,000. How homeowners use it:
How investors use it:
Smartfinn Tip: Using an offset account instead of making extra repayments can help investors keep their loan balance intact, which can support tax efficiency later. |
A redraw lets you withdraw extra repayments you’ve already made on your loan. It can act as a safety buffer or help fund expenses like renovations. How homeowners use it:
How investors use it:
Smartfinn Insight: Both features offer flexibility, but how you use them should match your strategy. Redrawing money for the wrong purpose can turn deductible debt into non-deductible debt. |
One of the biggest practical differences between home and investment loans is how lenders assess your borrowing power and what they expect for your deposit.
Even though the same credit rules apply, lenders calculate affordability differently when a property is used to live in versus when it’s used to generate income.
Your borrowing capacity is how much a lender is willing to let you borrow based on your income, expenses, and existing debts.
Example: If your investment property is expected to earn $600 per week, a lender might only count $420–$480 of that towards your income for serviceability.
That discount means investors often qualify for a lower borrowing limit than owner-occupiers on the same income.
Deposit requirements also differ slightly between loan types.
| Loan Type | Typical Minimum Deposit | With Lenders Mortgage Insurance (LMI) |
| Home Loan | 5–10% | Yes, available up to 95% LVR depending on your personal circumstances |
| Investment Loan | 10–20% | Sometimes available, but harder to secure |
Because investment properties are considered higher risk, lenders usually prefer a larger deposit or stronger equity position.
Some will also apply tighter loan-to-value (LVR) limits depending on the property type or location.
One of the biggest differences between a home loan and an investment loan is how the interest and expenses are treated for tax purposes.
While Smartfinn doesn’t provide tax advice, understanding the general rules helps you see how your loan structure affects your finances.
Disclaimer: This information is general in nature and does not constitute legal, tax, or financial advice. You should always seek professional advice from a qualified accountant or financial adviser before making decisions regarding loan structure, investment strategy, or tax deductions.
If you live in the property, the interest you pay on your mortgage is not tax-deductible.
The property is for personal use, so any costs related to owning or maintaining it can’t be claimed on your tax return.
However, features like an offset account can still save you money by reducing the amount of interest you pay over time.
If you use the property to earn income through rent or capital growth, the interest on your investment loan and certain property-related expenses may be tax-deductible.
These can include things like:
The idea is that you’re borrowing money to produce income, so the costs of doing so can be offset against your taxable income.
Smartfinn Tip: The deductibility of your loan depends entirely on how the borrowed funds are used. Mixing personal and investment spending (for example, using redraw for personal expenses) can make part of your loan non-deductible.
Choosing between a home loan and an investment loan isn’t just about interest rates.
It’s about what you want your property to do for you.
Whether that is providing stability, income, or long-term growth.
Here are a few common borrower scenarios to help you see which loan type may fit best.
Understanding the difference between a home loan and an investment loan is one thing. Knowing how to use that knowledge to make a smart financial move is another. That’s where Smartfinn comes in.
Our team is highly experienced in helping borrowers and brokers see the full picture before they commit. We analyse how each loan type and structure affects your repayments, cash flow, tax position, and long-term goals.
The right strategy can save you tens of thousands over the life of your loan.
A 30-minute chat with our team could help you identify ways to reduce costs, increase flexibility, and plan your next property move with confidence.
Give us a call on 1300 305 101 or contact us online today to compare home and investment loan options, model your repayments, and find the setup that supports your goals.
