Investment Loan

There are various types of investment loan but one of the most common is for a house that you wish to rent out. The idea is that you purchase a property and then rent it out with the rent covering the mortgage payment. The house will hopefully increase in value and an investment such as this usually makes a far better return than if the funds were tied up in the bank.

Investment Loan

The lending criteria for an investment loan such as this is somewhat different to a more traditional type of mortgage in that the rental income is taken into consideration as opposed to typical earnings from a place of work.

Different lenders have different rules but one of the most common is that the rental income should be at least 125% of the monthly cost of borrowing. The reason for this is that there may be void periods when the house is not occupied etc. Some lenders may insist that an agent is in place to organise the rental but as a rule, as long as the rental income is adequate there should not be a problem.

Another aspect of an investment loan that should be taken into consideration is that the interest rates that are payable are usually far higher than a normal mortgage. This should always be taken into account when working out what you can afford and as already mentioned, any void periods should be accounted for because if you are depending on the rental income to pay the loan then it could cause some difficulties.


As with any kind of loan that is related to a property it is important that the adequate building insurance is also taken out. Many lenders on home loans australia need to see proof of this before they will agree to any lending but even if they don’t it is vitally important that this type of insurance is in place. If the unthinkable does happen, the relatively small amount that has to be paid each month will pale into insignificance.

Investment Loan

Talking of insurance, it is not widely known but it is possible to get insurance should your tenants leave and you have difficulty finding someone to take their place. The cover lasts for 12 months and it really does take the pressure off, if you experience any baron periods. As always though, make sure there is adequate cash flow from your property to make the monthly Investment Loan payments.