How a mortgage broker for an investment property can help investors

A mortgage broker for an investment property is a credit professional who compares loans across many lenders and arranges the finance that fits your plan. Australian Securities and Investments Commission (ASIC) guidance describes a mortgage broker as “a go-between who deals with banks or other lenders to arrange a home loan”, and the same duty applies when the loan funds an investment property rather than a home you live in. For property investors juggling rental income, tax and borrowing capacity across more than one property, that comparison work can save real time. This guide explains what an investment property broker does, how a broker compares with going straight to a bank, and how to choose one.

What a mortgage broker does for property investors

A good broker understands your needs, works out your borrowing capacity, finds suitable loan options, explains how loans and their costs work, and manages the application through to settlement. For an investor, the borrowing-capacity step matters more than it does for an owner-occupier, because lenders treat rental income, existing loans and the structure of your portfolio differently from one to the next.

That is where access to a panel of lenders helps. A bank can only offer you its own products. A broker can compare several lenders at once, which is useful when one lender counts more of your rental income, or sets a different borrowing limit, than another. The right loan for an investor depends on your circumstances and each lender’s criteria, so comparing options side by side is the point of using a broker.

Brokers must act in your best interests when suggesting a loan for you. This is a legal obligation, set out in ASIC’s Moneysmart guide to using a mortgage broker, and it means the recommendation should be driven by your situation rather than by which lender pays the broker more.

Investment property broker vs going to a bank

The “broker vs bank investor” question comes down to choice and coordination. Here is how the two paths compare for someone buying or refinancing an investment property.

A broker is not automatically the right answer for every investor. If you already bank with a lender whose investment loan policy suits you, going direct can work. The value of a broker grows when your situation is more complex, for example when you hold several properties, have variable income, or want to compare how different lenders count your rent.

How a mortgage broker is paid

Cost is a common worry, so it helps to be clear. Lenders generally pay mortgage brokers a commission for distributing their products, so you do not pay the broker directly. The commission is a percentage of the loan amount and typically has both an upfront and an ongoing payment. If a broker does charge you a fee directly, it must be set out in a written quote that you sign before they start any work.

Because the lender pays the commission and the broker still owes you a best interests duty, a broker can compare loans for you without charging you for the comparison. It is fair to ask how a broker’s commission differs between lenders, so you understand the recommendation. The Moneysmart guidance suggests asking exactly that.

Loan features investors often weigh up

Many investors buy with an interest-only loan, but the interest-only period ends after a set time, after which repayments increase to pay back the amount borrowed plus the interest. A broker can model what that change could mean for your cash flow and help you decide whether interest-only or principal-and-interest suits your plan.

Tax treatment is another factor. You can offset most property expenses against rental income, including the interest on any loan used to buy the property. The loan you choose affects your repayments, though how it affects your tax position depends on your circumstances, so getting advice from your accountant alongside your broker is sensible. Moneysmart’s guide to buying an investment property sets out the costs and risks in more detail.

It also pays to look past the headline number to the comparison rate, which folds in many of the fees attached to a loan. Our explainer on the comparison rate walks through why two loans with the same interest rate can cost different amounts: Comparison rate explained.

Costs and risks to keep in view

Owning an investment property carries ongoing costs beyond the loan repayment. These can include council and water rates, building insurance, landlord insurance, body corporate fees, land tax, property management fees, and repairs and maintenance.

To get a feel for the numbers, try the borrowing power calculator before you talk to anyone.

If you want to move beyond owner-occupier finance and into investing, our guide to buying an investment property as a first home buyer and our piece on rentvesting cover the strategies investors often start with: First home buyer investment property and Rentvesting first home buyer. You can also read more about working with a broker as a first home buyer if this is your first loan: First home buyer mortgage broker.

How to choose a mortgage broker for investment property

Before you sign anything, make sure the broker holds a licence to give credit advice. You can search ASIC’s Professional Registers for their Credit Representative or Credit Licensee status, and if a broker is not on one of those lists they are operating illegally. From there, it helps to ask a few questions.

The right broker should answer all of these clearly and put the comparison in writing. If you would like a starting point, our investment loan page sets out how Finance Lab approaches investor finance: Investors.

Frequently asked questions

Talk to the team at Finance Lab

If you are weighing up finance for an investment property, the team at Finance Lab can compare loans across a panel of lenders and explain the options in plain terms. Get in touch to talk through your plan and what may suit your circumstances.