Buying your first property is a major milestone. It’s exciting, stressful, and full of questions, especially when it comes to choosing the right type of loan. One of the biggest decisions first-time buyers face is understanding the difference between an investment loan vs home loan, and knowing which one truly supports their goals.
Although both loan types help you purchase a property, the purpose, loan terms, cost of the loan, and long-term outcomes can be very different. Choosing the right home loan or investment property loan can influence your interest rate, borrowing power, loan repayment costs, tax benefits, and whether you qualify for first-home support.
To add some context, according to Cotality, the Australian property market continues to show strong buyer activity. Recent analysis reveals that first-home buyer lending has risen 20.7% over the past 12 months, far outpacing the 5.0% growth in non–first-home-buyer lending.
In this guide, we break down the difference between an investment loan and a home loan in a clear, friendly, easy-to-read way, so you can choose the right home loan confidently and avoid confusion along the way.
What is an Investment Loan?
An investment loan (sometimes called an investment home loan or investor loan) is for people who want to buy an investment property they won’t live in. Instead, the goal is to:
- Earn rental income
- Build long-term capital growth
- Flip it for profit
- Start or expand a property investment plan
- Invest in property as part of a long-term wealth strategy
Because investment properties depend on tenants, market demand, and the income from the property, lenders see these as higher risk. That’s why an investment home loan usually includes a higher interest rate than a standard rate home loan.
What are the Key Features of an Investment Loan?
1. Slightly Higher Interest Rates
Investment loans tend to have a higher interest or higher interest rate than home loan rates. This happens because rental properties come with more uncertainty, vacancies, maintenance, and tenant turnover.
2. Bigger Deposit (Lower LVR)
Lenders prefer a lower loan to value ratio, meaning you may need a larger deposit. This reduces the lender’s risk and helps keep your loan balance healthier over the life of the loan.
3. Interest-Only Repayment Options
Many property investors choose interest-only loans, especially early on. They do this because:
- It improves short-term cash flow
- Loan repayment amounts are smaller
- It can support tax strategies
- Income from the property may cover part of the interest
An interest-only loan or interest-only loans reduce the cost at the beginning, but the loan may cost more over time.
4. Tax Benefits
This is a major attraction of investment loans. You may be able to claim:
- Loan interest
- Property management fees
- Repairs and maintenance
- Depreciation
- Insurance
- Council rates
- Lenders Mortgage Insurance
These deductions can greatly reduce the cost of owning an investment property.
5. Potential for Capital Growth
Historically, Australian property tends to increase in value over time. AIHW shows that long-term trends highlight significant growth, with the median transfer price of established houses in Sydney rising from around $680,000 in 2014 to approximately $1.4 million by the end of 2024, a clear indication of the strong long-term appeal for property investors.
What is a Home Loan?
A home loan (also called an owner-occupied loan, owner-occupier home loan, or owner-occupied home loan) is for people who want a home to live in. Because you will live in the property yourself, lenders see this as lower risk, and home loan interest rates are usually cheaper.
What are the Key Features of a Home Loan?
1. Lower Interest Rates
A home loan often comes with a lower interest rate or lower loan interest rates compared to an investment loan. Because homeowners repay the loan for the property they live in, loans are generally more stable.
2. Higher Maximum LVR (Smaller Deposit)
You may be able to borrow up to 95% of the property value (with LMI). This makes it easier for first-home buyers with smaller savings to enter the market.
3. Access to First-Home Buyer Incentives
Depending on your state or territory, a first home loan may give you:
- The First Home Owner Grant
- First Home Guarantee (5% deposit scheme)
- Stamp duty concessions
These benefits are only available when buying a home you intend to live in.
4. Principal-and-Interest Repayments
Most home loans require principal and interest from the start. This helps you reduce your loan amount faster and build equity in your owner-occupied home.
If you sell your primary residence later, you generally don’t pay Capital Gains Tax (CGT), which can save you a significant amount.
What are the Key Differences Between an Investment Loan and Home Loan?
| Feature | Home Loan (Owner-Occupier) | Investment Loan |
| Purpose | Live in the property | Rent it out or flip it |
| Interest Rates | Lower | Higher |
| Deposit Requirement | Smaller deposit possible | Bigger deposit often required |
| Loan-to-Value Ratio (LVR) | Higher maximum LVR, meaning you may pay a lower deposit than an investor | Lower maximum LVR, meaning you may need a larger deposit |
| Taxes | You generally cannot claim tax deductions for home loan expenses | You may be able to claim tax deductions on interest, fees, maintenance, and depreciation |
| Fees | Usually no major difference in fees | Usually no major difference in fees |
| Government Benefits | Eligible (FHOG, first home schemes, concessions) | Not eligible for first home grants or stamp duty concessions |
| Stamp Duty | Usually applies equally to both; may get concessions as a first home buyer | Usually applies equally; investors generally cannot access concessions |
| Risk Level for Lenders | Lower | Higher |
| Repayment Type | Mostly principal & interest | Interest-only options are common |
| Assessment Criteria | Income + expenses | Income + rental yield + liquidity buffers + vacancy considerations |
What are the Key Factors to Consider When Choosing an Investment Loan vs Home Loan?
As a first-time buyer, choose between an investment loan and home loan based on your goals, comfort level, and long-term plans.
1. Purpose of the Property
Do you want a home loan for a property to live in, or do you want to invest in property? Your intention determines the loan type and affects the entire life of the loan.
2. Cash Flow and Affordability
A home loan has predictable home loan repayments because the home loan interest is usually lower.
Investment loans often come with:
- Rental income shortfalls
- Vacancy periods
- Repairs
- Property management fees
Loans often differ significantly based on a loan structure, so consider what feels sustainable.
3. Deposit Size and Equity
A home loan allows smaller deposits. Investment properties usually need more up front. But rental income may help repay the loan, and your property may grow in value.
4. Eligibility for Government Support
As a first-time buyer, you may access:
- First Home Owner Grant (FHOG)
- Deposit scheme options (e.g., First Home Guarantee)
- Stamp duty concessions (state-dependent)
However, these benefits typically apply only if the property is owner-occupied, not for investment purchases.
5. Tax Benefits and Wealth Creation Potential
Investment loans come with financial advantages, including:
- Tax deductions on loan interest
- Deductible maintenance and management costs
- Depreciation benefits
- Potential capital gains if the property increases in value
Meanwhile, home loans do not offer tax deductions, but you do gain long-term equity and security without the tax and tenant complications of an investment property.
6. Risk Tolerance
Property investment can offer strong long-term rewards, but comes with risks associated with investment properties:
- Economic changes
- Market movements
- Higher interest
- Rental property issues
Home loans tend to offer more stability.
7. Long-Term Goals and Lifestyle Considerations
Ask yourself:
- Am I planning to buy a home and stay long-term?
- Am I ready for landlord responsibilities?
- Do I want wealth through property or a property to live in?
When applying for an investment or deciding to get a loan, choose the option that aligns with your long-term vision.
You may also compare a fixed rate, fixed rate home, variable rate, variable rate home, or variable rate loan. Each loan rate affects your loan repayment and loan balance differently over the life of the loan.
Conclusion
Understanding the difference between an investment loan and a home loan helps you choose wisely. Each loan type suits different goals, whether buying an investment property, purchasing a home, or building long-term wealth. Compare interest rates, costs, and features carefully before deciding.If you want personalised guidance to choose the right loan, Clear Path Financial Group is here to help you compare loan options, understand home loan interest, and repay the loan with confidence.
