Are investment property rates higher? Here’s What You Need to Know.
- My Finance Agent
- Jul 23
- 4 min read
If you're thinking about buying a rental property, you're probably wondering: Are interest rates higher for investment loans? The short answer is yes—but there’s more to the story.
In this article, we’ll explore:
Why interest rates are higher on investment properties
What that means for your finances
How the structure of your loan plays a role
Why working with a mortgage broker can give you the edge
Why Are Investment Loan Rates Higher?
Lenders usually charge higher interest rates on investment loans compared to owner-occupied loans. Here’s why:
1. Higher Risk for Lenders
Investors are more likely to default during tough times. Lenders know that borrowers will prioritise their own home repayments before an investment property—so they price that extra risk into the loan.
2. Interest-Only Loan Preference
Most investors opt for Interest-Only repayments (more on that below). While this helps with cash flow, it means the loan balance stays higher for longer, which increases risk for the lender.
3. Regulatory Guidelines
The Australian Prudential Regulation Authority (APRA) has introduced measures in recent years to cool investor lending, including portfolio caps and tighter serviceability requirements. These changes prompted many lenders to lift investor rates.
4. Larger Loan Sizes or Higher LVRs
Investors may stretch their borrowing limits, which can trigger higher Loan-to-Value Ratios (LVRs) or additional costs like Lenders Mortgage Insurance (LMI). This too can drive rates up.
And don’t forget—your rate may also be impacted by changes from the Reserve Bank of Australia, which adjusts the official cash rate based on broader economic conditions.
Understanding Your Repayments: Interest-Only vs Principal & Interest
How you structure your loan also affects your repayments and long-term strategy. Here’s a quick comparison:
Feature | Interest-Only | Principal & Interest |
What you repay | Only the interest | Both principal + interest |
Monthly repayments | Lower | Higher |
Loan balance | Stays the same | Decreases over time |
Cash flow | Better short-term cash flow | Slower equity building |
Tax benefits | Interest may be fully deductible* | Only the interest portion may be deductible* |
Common for | Investors | Owner-occupiers |
*Always speak to a tax professional about your individual circumstances. You can also refer to this ATO guide on rental property interest deductions.
Why Investors Usually Choose Interest-Only
Interest-Only repayments can make a lot of sense for investment properties—especially in the early years of owning the asset.
Here’s why:
Improved cash flow: Lower repayments free up money for other investments or expenses.
Tax strategy: In many cases, the interest component of an investment loan is tax-deductible.
Flexibility: You can still make extra repayments if you want, depending on the loan structure.
Capital growth focus: Investors often rely on the property increasing in value over time rather than rapidly paying down the debt.
⚠️ Important: Interest-Only loans aren’t always the right fit. They can cost more in the long run, and repayments will rise when the IO period ends. Every investor’s situation is unique—your financial goals, risk appetite and tax position all need to be considered.
That’s why it’s essential to speak to a mortgage broker before choosing your loan structure.
For more detailed insights on how loan types compare, check out our blog on Investment Property Loan vs Owner Occupier Loan.
How a Mortgage Broker Can Help Property Investors
Whether you’re buying your first investment or growing a portfolio, working with a mortgage broker can give you a serious advantage.
At My Finance Agent, here’s what we bring to the table:
✔️ Tailored Loan Strategy
We take the time to understand your goals and help you structure your loan to support them—whether that’s minimising repayments, accessing equity, or building wealth.
✔️ Access to the Whole Market
Your bank will only show you its own products. We compare loans from 60+ lenders, including those with investor-friendly features and policies.
For more detail on lender policy differences and key investor tips, read: Investment Property Loans: Key Considerations Explained.
✔️ Ongoing Loan Reviews
We don’t just help at application time. We review your loan annually to make sure you’re always getting a competitive rate and not stuck paying the “loyalty tax”.
Thinking About Where to Invest?
Choosing where to buy is just as important as choosing how to finance it.
Download our free report, State of Play 2025, which provides a national market overview and outlines the best regions to consider for your next investment.
And if you’re not ready to buy where you want to live, consider rentvesting—a smart strategy that allows you to rent in your ideal location while building equity elsewhere.
DISCOVER MORE >
Want to check out your options?
Yes, investment property interest rates are usually higher. But with the right guidance, loan structure, and strategy, you can still build wealth while keeping your costs in check.
If you're an investor ready to take the next step—or just want a second opinion on your current loan—chat with one of our expert brokers at My Finance Agent.
We’re here to help you grow your portfolio with confidence.
Call us on (02) 8313-8400 or request a call back.
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