Whether you're buying a home to live in or as an investment, the type of loan you take out has a significant impact on your borrowing costs, tax obligations and long-term financial strategy. While both home loans and investment loans are used to purchase property, lenders treat them quite differently, so it’s important to understand what sets them apart before you apply.
Investor lending is growing strongly, with data from the Australian Bureau of Statistics (ABS) showing that the total number of new investor loan commitments grew 18.8% between the March 2025 and 2026 quarters. That’s compared to owner-occupier loans, which grew just 2.5% over the same period. Although owner-occupier loans still make up the majority, new investor loans reached an overall market share of 41.0% in the March 2026 quarter, their highest mark in six years of ABS data.
How do owner-occupier home loans work?
An owner-occupier home loan is a loan taken out to purchase a property that you intend to live in as your primary place of residence. With an owner-occupier loan, you'll borrow a set amount from a lender and repay it over an agreed loan term, typically 25 to 30 years, along with interest.
Most borrowers opt for principal and interest repayments, meaning each payment you make reduces both the amount you owe and the interest charged on your balance. Interest-only repayments are also available, though they’re more commonly used by investors.
Because owner-occupier borrowers are generally seen as lower risk by lenders, these loans tend to come with lower interest rates than investment loans.
Types of owner-occupier home loans
- Variable rate home loans: the most common type of home loan in Australia, where your interest rate moves up or down in line with market conditions. This means your repayments can change over time, but you'll also benefit if rates fall.
- Fixed rate home loans: your interest rate is locked in for a set period, typically one to five years, giving you certainty over your repayments. At the end of the fixed term, your loan will revert to a variable rate.
- Split home loans: a combination of fixed and variable rates, allowing you to hedge against rate movements while maintaining some flexibility. You choose how much of your loan to fix and how much to leave variable.
- Construction loans: designed for borrowers who are building a new home rather than purchasing an existing one. Instead of receiving the full loan amount upfront, funds are released in stages as construction progresses. You’ll only pay interest on the amount drawn down at each stage.
- Bridging loans: a short-term loan designed to cover the gap between buying a new property and selling your existing one. They allow you to complete a purchase without having to wait for your current home to sell, though they come with higher interest rates.
How do investment home loans work?
An investment loan is a home loan taken out to purchase a property you intend to rent out or use to generate income, rather than live in yourself. While they work in much the same way as owner-occupier loans, there are some key differences in how lenders assess and price them.
Like an owner-occupier loan, you'll borrow a set amount and repay it over an agreed term of up to 30 years. However, investment loans generally come with higher interest rates, as lenders consider them higher risk. These loans also have tax incentives, with interest and other landlord-related expenses able to be claimed as deductions.
Types of investment home loans
- Interest-only investment loans: allow you to repay only the interest portion of your loan for a set period, typically up to five years. This reduces your monthly repayments and can have tax advantages, though you won't be reducing the principal during the interest-only period.
- Line of credit loans: allow you to borrow against the equity in an existing property, giving you a revolving credit facility you can draw on to fund an investment purchase. These are popular among experienced investors who want to use them to grow their portfolio.
- SMSF loans: a specialist loan product that allows self-managed super fund trustees to borrow money to purchase an investment property within their fund. These loans come with strict regulatory requirements and are structured differently to standard investment loans.
The differences between investment loans and home loans
| Investment loan | Home loan | |
|---|---|---|
| Who lives there? | Tenants | You |
| Interest rates | Higher | Lower |
| Fees | Similar, but may be higher | Similar, but may be lower |
| Loan-to-value ratio (LVR) | Up to 80% to 90% LVR | Up to 95% LVR |
| Lenders mortgage insurance (LMI) | Required for deposits less than 20% but may be tax-deductible | Required for deposits less than 20% unless exempt |
| Tax benefits | Negative gearing (new builds only from 1 July 2027)
Claimable expenses such as interest and home maintenance |
Capital gains tax (CGT) exemption at point of sale |
| Government incentives | None | First Home Owner Grant (FHOG)
5% Deposit Scheme Help to Buy Scheme |
Investment loans vs home loans: cost
When comparing the cost of an investment loan to an owner-occupier home loan, there are a few key differences to keep in mind. Perhaps the biggest is that, as mentioned, investment loans typically carry higher interest rates, as lenders price in the additional risk.
Lenders are also more likely to require a larger deposit for an investment purchase, with many capping their maximum LVR at 80% or 90% compared to 95% for owner-occupiers. On the flip side, investors can claim interest and other property expenses as tax deductions, which can offset some of the higher borrowing costs.
Case study: owner-occupier home loan
Michael is buying his first home in Adelaide for $600,000. He has saved a $120,000 deposit, giving him an LVR of 80% and a loan amount of $480,000. His lender offers a variable rate of 6.00% p.a. on a 30-year principal and interest loan. His monthly repayments come to $2,878, and he'll pay a total of $556,916 in interest over the life of the loan.
Because there are no tax deductions that can be drawn from the loan or home ownership, this is what Michael will pay over the 30 years of his mortgage (subject to changes in his bank’s interest rate).
Case study: investment loan
Sarah is purchasing an investment property in Brisbane for $600,000. She also has a $120,000 deposit, giving her the same LVR of 80% and a loan amount of $480,000. However, as an investor, her lender charges a higher rate of 6.40% p.a. on the same 30-year term.
Her monthly repayments come to $2,997, so she'll pay a total of $598,826 in interest over the life of the loan ($41,910 more than Michael) before any tax deductions are factored in. However, since this can be deducted, the actual amount she’ll pay will depend on the value of her deductions overall.
Investment loans vs home loans: tax benefits
There are no real tax advantages for owner-occupier home loans beyond not needing to pay CGT upon the sale of the property. However, investment loans can offer a number of potential tax benefits, including:
Deductible expenses
As a property investor, many of the costs associated with owning and managing your rental property can be claimed as tax deductions. According to the ATO, these include:
- Council rates
- Depreciation on assets within the property
- Insurance
- Interest on your loan
- Property management fees
- Repairs and maintenance
Negative gearing
Negative gearing occurs when the costs of owning your investment property exceed the rental income it generates, resulting in a net loss that can be offset against your other income to reduce your tax bill.
However, it's important to note that the Australian Government announced reforms to negative gearing as part of the 2026-27 Federal Budget. From 1 July 2027, negative gearing for residential property investments will be limited to new builds only.
Properties held at the time of announcement (7:30pm AEST, 12 May 2026) are exempt from this change, but any residential property purchased after that point will no longer be eligible for negative gearing unless it’s a newly built home. This reform is yet to be passed as legislation.
Capital gains tax (CGT)
When you sell an investment property for a profit, you'll pay CGT on the gain. Currently, investors who have held a property for more than 12 months are entitled to a 50% CGT discount.
The 2026-27 Budget also announced reforms to CGT, which will replace the 50% discount with cost base indexation and a 30% minimum tax rate on capital gains from 1 July 2027. These changes will only apply to gains that accrue after that date, so existing investors won't be taxed retrospectively.
Should I use an offset account or redraw facility on my loan?
Both offset accounts and redraw facilities can help you reduce the interest you pay on your home loan, but they work differently and suit different types of borrowers.
An offset account is a transaction account linked to your home loan, where the balance is offset against your outstanding loan amount for the purpose of calculating interest. For example, if you have a $500,000 loan and $30,000 sitting in your offset account, you'll only be charged interest on $470,000.
A redraw facility allows you to access extra repayments you've made on top of your minimum repayments. So, if you've paid $20,000 ahead of schedule, you can draw some of those funds back out if you need them, subject to your lender's conditions.
Either (or both) can work for owner-occupiers, as there aren’t any tax implications for the interest paid on their home loan. Whether you choose an offset account or redraw will ultimately come down to your preferences as a home buyer.
However, investors typically use offset accounts over redraw facilities, as there’s less risk of impacting eligible deductions. While redraw facilities can be used, their suitability depends on how funds are being used. Here are some scenarios where investors may have to choose one or the other:
- You’re paying money into your loan and aren’t going to withdraw it: either an offset account or redraw facility will work here.
- You’re paying money into your loan and want to withdraw for business use: again, either option will suffice if you’ll only be accessing funds for income-generating purposes.
- You’re paying money into your loan and want to withdraw for personal use: using an offset account will allow you to access your money without muddying the water on tax deductibles. This would likely be the case for funds taken out of a redraw facility.
