Your next home

Rentvesting is a popular strategy for first home buyers who want to purchase a home but can’t afford to buy in the expensive cities where they work and live. As a rentvestor, you continue to rent yourself and purchase in a cheaper location, renting this property out to tenants.

For example, if you can’t buy in Sydney or Melbourne, you could purchase a rental property in Queensland, where average house prices are lower.

As a property appreciates over time, a rentvestor could sell their investment or use equity in the property for a deposit to buy a home where they live and work.

Just like owner-occupier mortgages, lenders look at your employment income when evaluating your ability to repay the loan. For rental investments, lenders will also consider a percentage of your proposed rental income.

Lenders also look at your living expenses and any loans or debts you are still paying off. The greater the difference between your income and expenses, the more comfortable most lenders will be in your ability to make repayments on the new loan.

Some investors prefer interest-only loans because they offer lower repayments, freeing up capital for other ventures. In some scenarios, interest-only repayments may be low enough to be completely covered by rental income.

The funds saved by not paying the principal on the investment loan could also be used to pay off the mortgage faster on your primary residence.

However, interest-only loans could be considered riskier because you aren’t reducing your debt or increasing your equity. If your financial position has worsened when your interest-only term ends, lenders may require you to begin paying principal as well, which could put significant strain on your ability to repay the loan.

Before selecting an interest-only loan, we recommend speaking to one of our expert mortgage brokers to explain all the risks and potential rewards.