Moving into your investment property: How to switch an investment loan to an owner occupied loan

If you own an investment property, you may find that there comes a time you want to move into it. Perhaps you’ve been rentvesting or living overseas, or maybe you  bought your next home before you were ready to live there and now’s the time you want to finally enjoy it.

Whatever your reason for moving into your investment property, if you have a mortgage on the property, you should consider switching from an investment home loan to a principal place of residence (PPR) or owner/occupier home loan. 

We explain the pros and cons of doing this and walk you through the process involved in switching from an investment loan to an owner/occupier home loan. 

Why should you update your loan to an owner-occupier loan

There are real benefits to owner-occupier loans, just as there are for investment home loans. Here are the main reasons to consider making a switch.  

1. The loans are designed for different purposes

Fundamentally, and as the name suggests, investment loans are specifically designed for investment properties where someone is paying the rent and the owner is potentially claiming expenses for tax purposes, including mortgage interest. 

An owner-occupier loan, on the other hand, is designed for someone living in their property, and usually comes with more bells and whistles. 

That means you can often get access to more home loan features by switching to an owner/occupier loan. This can often include an offset account or redraw facility, as well as the opportunity to take repayment holidays. You can sometimes also get access to cheap credit cards, insurance and other financial products. 

If you're ready to move in to your investment property then it's time to update your loan. Picture: realestate.com.au

2. You could avoid paying Capital Gains Tax (GCT)

An investment property you own will be subject to capital gains tax (GCT), while your principal place of residence generally isn’t. That said, if you’re moving into an investment property you may still have to CGT for that portion of time you rented it out - although some exemptions apply. 

Read more about how to avoid paying CGT when you sell a property.

3. You could get a lower interest rate

When a lender assesses you for an investor loan, they’ll also usually consider that someone is paying the rent and helping you pay the mortgage. 

Because the property can go vacant, or the rent can dip, investor loans are generally considered higher risk. 

The more risk a lender takes on, the more interest they’ll generally charge. As a result, you’ll often pay more on an investor loan. Making a switch should give you access to better interest rates. 

4. You could get better terms and conditions

Investor loans often come with stricter terms and conditions than owner/occupier loans. This often includes stricter lending criteria and larger minimum deposits. 

5. You could get a principal and interest loan

A lot of investment loans are ‘interest only’ home loans, meaning you’re not paying off any of the loan principal. Instead, you’re only paying interest (which you can claim for tax) and then relying on capital growth to make money.

Owner-occupier loans, on the other hand, tend to be principal and interest home loans. This means you’re not just paying interest but also making a dent in the value of the property itself. When you’ve made your last repayment and the loan expires, you’ll actually own your home. 

If you’re on an interest-only home loan, making the switch could be a great time to start paying down the loan principal too. 

How to switch from an investment loan to an owner-occupier loan 

Converting your home loan from an investment loan to an owner-occupier home loan usually involves a few steps. We’ve set out the key ones below.  

1. Compare what’s available

Even though interest rates are rising, Australia’s lending environment remains as competitive as ever. That means you’re likely to be able to find a good deal by making the switch to an owner-occupier home loan. 

This can be a great time to compare home loans and see what else is available.  

2. Get your paperwork together

Regardless of whether you’re staying with your current lender or moving to a new home, switching from an investment loan to an owner-occupier loan usually means ending one loan and taking out another. So you’ll need to get all your paperwork together - such as proof of income and expense - just as you would when you apply for any other home loan. 

3. Speak with a mortgage broker

Even though you’ll need to apply for a new home loan, making the switch doesn’t have to be complicated and time-consuming. A mortgage broker can guide you through the process, letting you know loans suit your purposes and then helping you apply for the right one. 

4. Apply for a home loan

Because you won’t be receiving rental income from the property anymore, lenders will carry out a whole new home loan assessment and will again analyse your borrowing capacity. 

Find out more about how much you can borrow. 

5.  Advise the ATO

To avoid paying capital gains tax (CGT) on your home, you’ll need to let the ATO know your circumstances have changed and that you’re now living in it. They’ll then adjust their records to account for this.