Owner Occupier Loan
If you’re a home buyer, taking stock of your property goals enables you to choose the suitable home loan that benefits your lifestyle. And first time home buyers may want to consider an owner-occupier loan that takes into consideration any future goals they may have.
This type of loan is meant for borrowers who will reside in the very home they want to purchase. Whether you want to build, renovate, or move to an existing property, you can apply for owner-occupier loans and get better rates.
What is an Owner-Occupier Loan?
Owner-occupier loans differ from investment loans and other home loans – that is, you, the owner, should live at the residence for most of the year. So it’s not going to be a vacation home, and it’s not going to be a build-to-rent property.
Generally, banks and specialist lenders offer attractive owner occupier loan rates because it’s viewed as a less risky loan than a property investment. After all, if you’re living in the property, you’d make a more concerted effort to avoid defaulting on missed repayments.
Here are the requirements in an owner occupied loan:
- You will reside in the property for no less than 70% of the time in a year
- Your place of work is within 50 miles of the property
- You intend to move in within 30 days of closing on the home
- The property is your permanent residence for at least 12 months
- You provide written and signed intent that you will live in the property being applied for financing
We cannot stress how significant the intent is when applying for and securing the loan. Once you get an owner-occupier loan, you have to abide by the rules, otherwise, if you rent it out, you could get in trouble for what is considered occupancy fraud-sounds scary, and get nasty letters or calls from the office of state revenue .
Why specify the Owner Occupier Loan?
Lenders make the distinction between owner occupied home loans and investment home loans – the latter being a loan you get for a property used as an investment, and not a home that you will live in.
Now, the interest rates vary between these two types of loans. Lenders generally consider an owner occupied loan lower in risk than an investment property, as the home will be a permanent dwelling for the borrower. By nature, rental markets incur additional costs with insurance, and property management fees, and so it will be a bigger risk for banks when calculating the interest rate.
The RBA shows the discounted rate for an owner occupier is at 3.60% p.a. which is much lower than property investor rate average of 4.08% p.a.
Owner occupied financing requires that a borrower reside in the home for a period of at least 12 months, hence the term “owner occupied.” It’s important to actually live in the property to avoid any risk of fraud.
Intellichoice is here to make your owner occupier loan application easy and worry-free. You get to enjoy lower interest rates, fees, and charges, plus you can reside at the property right away.
What happens if I rent out my owner-occupier home?
Since owner-occupier home loans have different terms and conditions than investment property loans, it’s important to keep things in line with owner occupancy. Banks check this status and may give serious consequences if they find out that the property is being used as a rental.
Lying to your lender about the purpose of your property can have serious consequences. Your lender may recall the home loan if they are made aware of this. Being rejected could lead to a black mark on your credit rating and affect your other loan applications in the future.
It’s important to inform your lender if you are changing from an owner-occupier to an investment property home. This way, you are refinancing the loan and passing through the right channels without violating any owner-occupier home loan clause.
You have three options when switching loans:
- Refinance with your existing lender into an investment loan;
- Refinance your home loan to another lender with a better interest rate;
- Consult with a mortgage broker, who may be able to recommend a lender with the right package.
Can I apply for an owner occupier loan for my second home?
A second home does not qualify as owner occupied, because that is not their primary residence. Only if the owner decides later to make their second home the primary dwelling, then you could look for refinancing to make it the primary residence.
As for duplex type structure, as long as you reside permanently in one part of the duplex, then it counts as an owner-occupied home.
Benefits of an Owner-Occupier Loan
Here are several advantages of applying for an owner-occupier loan:
Lower interest rates – Owner-occupier loans often come with more favorable cash rates and repayment terms compared to investment loans. Lenders look at this loan as lower risk, with less likelihood of the borrower defaulting on their place of residence.
Lower deposit – In most cases, investment homes require larger down payment than an owner occupier loan, as lenders aim to recoup any risk with investment properties faster than with a home buyer.
Grants and incentives – Australia has government grants and incentives available for owner occupiers, such as the First Home Owner Grant which provides financial assistance to eligible first-time home buyers.
Potential capital growth – Securing an owner-occupier loan and residing in the property allows you to build your assets and benefit from any increase in property value over time.
Emotional and lifestyle factors – Owning your own home provides a sense of stability, security, and the freedom to customize and personalize the property according to your preferences. It also eliminates the uncertainty that comes with renting.
Owner Occupier possible drawbacks
Limited investment opportunities – Since an owner-occupier home is not meant to be an investment property, you may limit your ability to build your portfolio. By using your funds to purchase and occupy a property, you may have less capital available for investment opportunities.
Less tax benefits – Owner occupiers generally have fewer tax benefits than investors, especially with tax deductions, ongoing property costs, and other fees only available to investment loan borrowers.
No rental income – Unlike an investment property, an owner-occupier home does not generate rental income. Because you cannot use the owner-occupier home for rental, you won’t enjoy passive income from it to help offset property expenses.
Potential illiquidity – Owning an owner-occupier home may reduce liquidity since the property is primarily used for personal purposes. Selling the property may take longer and involve additional costs, impacting your ability to access the funds tied up in the property.
If you’re considering whether to get an owner-occupier or investment loan, consult with Intellichoice mortgage brokers, who can offer valuable insights and updates on what loan terms work best for your needs. It’s essential to weigh your finances, property goals, and future preferences, beyond the potential interest rate advantages.
We have a network of over 20 lenders to let you access a range of owner-occupier loan products tailored to your needs. Our mortgage specialists will source the most competitive interest rates, flexible repayment options, and personalized terms to ensure a smooth and seamless borrowing experience. Own your ideal home – let Intellichoice be your trusted lending broker.
