Investment Home Loans vs First-Home Buyer Loans: Which Is Right for You?

Not all home loans are created equal. Whether you’re stepping onto the property ladder for the first time or building a property portfolio, the type of loan you choose will have a big impact on your finances, borrowing power, and tax position. Let’s break down the key differences between investment loans and first-home buyer loans in Australia.

1. Purpose of the Loan

• First-Home Buyer Loan

  Designed to help Australians purchase their very first property, usually as a place of residence. Access to government grants and stamp duty concessions is a major feature.

• Investment Loan

  Structured for buyers who intend to rent out the property and generate income or long-term capital growth. Investors don’t usually receive first-home buyer grants, but may benefit from tax deductions.
  

2. Deposit Requirements

• First-Home Buyer Loans

  With government schemes like the First Home Guarantee (5% deposit) or Family Home Guarantee (2% deposit), first-time buyers can often enter the market with a smaller deposit than investors.

• Investment Loans

  Most lenders require 20% deposit for an investment property to avoid Lenders Mortgage Insurance (LMI). Some may allow 10%–15% deposits with LMI, but the requirements are usually stricter than for first-home buyers.
  

3. Interest Rates & Loan Features

• First-Home Buyer Loans

  Typically come with owner-occupied rates, which are lower than investor rates. Features like offset accounts and redraw facilities are common.

• Investment Loans

  Interest rates are usually slightly higher because lenders consider investment lending a greater risk. Many investors also choose interest-only repayments to maximise cash flow and claim deductions, though this means the loan balance doesn’t reduce during that period.
  

4. Tax Considerations

• First-Home Buyers

  First-home buyers generally cannot claim loan interest as a tax deduction, since the property is their primary residence. However, they may benefit from:

  • Stamp duty concessions (depending on the state)

  • First Home Owner Grant (FHOG)

• Investors

  Investors can usually claim:

  • Loan interest deductions

  • Property management fees

  • Depreciation on fittings & fixtures

  • Repairs & maintenance costs

    Negative gearing is a key strategy many investors use to offset rental losses against other taxable income.
    

5. Borrowing Power

• First-Home Buyers

  Borrowing power is assessed on income, liabilities, and living expenses. Government schemes may boost affordability by removing the need for LMI.

• Investors

  Lenders often include a portion of rental income from the investment property when calculating borrowing capacity. However, assessment rates are usually stricter, which can reduce the total amount you can borrow compared to an owner-occupied loan.
  

6. Risks to Consider

• First-Home Buyers

  • Overstretching finances by buying too close to maximum borrowing capacity.

  • Interest rate rises impacting repayments.

  • Limited flexibility if future plans change.

• Investors

  • Rental vacancies reducing income.

  • Market fluctuations affecting capital growth.

  • Higher interest rates and stricter lending criteria.