Property investment vs. homeownership: Key differences explained

How investment property loan rates compare to home loan rates

Interest rates for investment properties are generally higher than those for owner-occupied loans. This is because lenders consider investment lending to be riskier - repayments often depend on rental income, and investment properties are more vulnerable to market shifts.

Key reasons for the rate difference include:

• Loan-to-value ratio (LVR): Investment loans often require lower LVRs for favourable pricing.
• Borrower risk profile: Investors may hold multiple debts, making servicing more complex.
• Property type and location: Certain investment types (e.g. apartments in dense areas) attract loading.
• Income reliability: Investment lending is assessed using projected rental income, which adds variability.

While owner-occupier loans may come with lower rates and flexible terms, investment loans can offer advantages like interest deductibility and interest-only repayment options, which support cash flow and tax efficiency.

To better understand how these loans work in practice, explore Yard’s investment property loan products and view our current loan offers. For more on using rental income to boost borrowing power, see our article on rental income strategies.

Variable vs fixed investment property interest rates

Interest rates can be either variable or fixed, depending on how much rate certainty and repayment flexibility you need.

• Variable rates move with the market and RBA decisions, which can lead to lower repayments when rates drop - but higher costs when they rise. These loans often include added features such as offset accounts, redraw facilities, and fewer restrictions on early repayments.
• Fixed rates remain stable for a set term, providing repayment certainty and protection against rising rates. However, they may restrict access to features like extra repayments or early refinancing.

Choosing between variable and fixed rates depends on your financial strategy and risk appetite. Investors often value the flexibility of variable loans when planning for long-term growth.

Compare options using our current loan offers and explore how variable or fixed rates could support your investment plans in our guide on using existing equity for an investment property.

Repayment types: principal and interest vs interest-only

Your repayment type has a direct impact on cash flow and long-term investment returns. The two most common options are:

• Principal and interest (P&I): With P&I, you're gradually paying down both the loan balance and interest. This is ideal for homebuyers looking to build equity and fully repay the loan over time.
• Interest-only (IO): This structure allows you to pay only the interest component for a fixed period (usually 1–5 years), lowering repayments and freeing up cash. It’s a preferred option for many investors who aim to:
  • Maximise short-term cash flow
  • Take advantage of tax-deductible interest
  • Focus on capital gains over long-term ownership

That said, IO loans require discipline, as the principal doesn’t reduce unless refinanced or switched later. To learn more about how repayment structures impact affordability and tax outcomes, see our low doc investment loan guide or explore how to fund your next purchase in buying a second property.

Understanding the role of down payments in investment property loans

Down payments play a significant role in shaping your investment loan structure and the interest rate you receive. Lenders generally require a larger deposit for investment property loans than they do for owner-occupied loans - typically 10–20% of the purchase price, depending on the lender and your financial profile.

A larger deposit helps reduce the loan-to-value ratio (LVR), which in turn lowers the lender’s risk. Borrowers with an LVR under 80% may avoid lenders mortgage insurance (LMI) and be offered more competitive investment property loan rates.

If you're already a homeowner, tapping into the equity of your current property can be a smart way to fund a deposit without needing to save in cash. This strategy is commonly used by investors seeking to grow their portfolio without liquidating other assets.

To learn more, explore our guide on using existing equity for an investment property, or see how buying a second property can work with a smart deposit strategy.

Impact of credit score on investment property rates

Your credit score is one of the most influential factors lenders use to determine the interest rate for your investment loan. A strong credit score indicates reliability and sound financial management, giving lenders confidence in your ability to meet repayments.

Borrowers with excellent credit histories are more likely to access the most competitive investment property interest rates. Conversely, lower scores may result in higher rates or more stringent loan terms.

To improve your credit profile before applying:

• Ensure all current debts and credit cards are paid on time
• Limit new credit enquiries in the months leading up to your application
• Reduce outstanding balances where possible
• Maintain consistent employment and savings patterns

If you have a non-standard income profile - such as being self-employed or using rental yield as a primary income stream - you may also consider alternative options like low doc investment property loans, which provide more flexible pathways to approval.

Borrowing as a self-employed investor or with non-standard income

Securing an investment property loan can be more complex if you’re self-employed, a contractor, or rely on non-traditional income streams such as rental yield, dividends, or seasonal earnings. Standard loan applications typically require two years of financials and stable PAYG income - criteria that don’t always reflect the financial reality of successful business owners or flexible workers.

If you fall into this category, you may want to explore a low doc investment loan. These loans allow borrowers to verify income using alternative documentation, such as:

• BAS statements
• Business account bank statements
• Accountant declarations

Low doc loans are designed to give income earners with unconventional income structures a path to finance, though they may come with slightly higher interest rates or stricter LVR limits.

To find out more, read our guide on low doc investment property loans and see how Yard can support you with a flexible and transparent approach to borrowing.

Conclusion

Both property investment and homeownership are powerful wealth-building tools - but they serve different goals and demand different financial strategies.

For homebuyers, the focus is on long-term stability, equity growth, and personal lifestyle needs. For investors, the priority is financial return - driven by rental income, capital appreciation, and tax-effective loan structures.

Understanding the key differences in investment property loan rates, repayment options, rate types, deposit strategies, and credit considerations can position you to make a confident, well-informed decision.

At Yard, we support both homeowners and investors with transparent loan products, flexible repayment structures, and personalised service.

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