What Happens to Your Loan When You Move Into an Investment Property?

If you move into a property that was previously financed as an investment property, you should tell your lender because the property’s occupancy has changed. The lender may update the loan from investment to owner-occupied classification, depending on its policies and your circumstances. This could affect the interest rate, loan features or other terms. The loan does not necessarily need to be refinanced simply because you move into the property. Tax and insurance implications may also arise, so appropriate professional advice should be considered.

Why Does Moving Into an Investment Property Matter?

A property may originally be purchased and financed as an investment because the borrower intends to rent it to tenants rather than live there. Circumstances can change. You might later decide that the property’s location, size or other characteristics make it suitable as your own home. From a lending perspective, this changes how the property is being used. Instead of being an investment property, it becomes your principal or owner-occupied residence for lending purposes, subject to the lender’s classification rules. Because owner-occupied and investment lending can be treated differently, it is important to notify the lender when the property’s use changes.

Does Your Existing Loan Automatically Change?

Not necessarily. Simply moving into an investment property does not automatically replace the existing loan with a different product. Your loan agreement remains in place unless the lender changes the applicable classification or you arrange a different loan. The process for updating occupancy varies between lenders. Some may be able to update the existing loan internally, while other circumstances could require a product change or further assessment. You should confirm the process directly with your lender or mortgage broker rather than assuming the loan will automatically change.

Could Your Interest Rate Change?

Potentially. Lenders may price owner-occupied and investment home loans differently. If your loan was originally priced as an investment loan and the property becomes your home, a change in classification could potentially affect the applicable interest rate. However, a lower interest rate should not be assumed. Rates depend on the lender, loan product, loan-to-value ratio, repayment type and other factors. Any change to the rate or loan terms should be confirmed with the lender.

Do You Need to Refinance?

Moving into an investment property does not necessarily mean you need to refinance. Your existing lender may be able to update the occupancy classification without requiring you to move the loan elsewhere. Whether this is possible depends on the lender and the particular loan. Refinancing could separately be considered if you want to review the loan’s rate, features or structure, but it involves a new credit application and may involve fees and other costs. A lower advertised rate does not automatically mean refinancing will provide a lower overall cost.

What Happens If Your Loan Is Interest-Only?

Some investment property loans are structured with an interest-only repayment period. Moving into the property does not necessarily mean that repayment arrangement immediately changes. The existing credit contract, remaining interest-only period and lender’s policies will be relevant. If you want to change from interest-only to principal and interest repayments, the lender can explain what options are available and whether an assessment is required. Changing the repayment structure can affect repayment amounts and the total interest paid over the loan term.

What If the Property Still Has Tenants?

Timing can be important if you are planning to move into a currently rented property. Residential tenancy laws govern matters such as ending a tenancy and notice requirements, and these rules vary between Australian states and territories. A decision to occupy the property does not remove existing contractual or legal obligations to tenants. Property owners should obtain appropriate property management or legal advice about the tenancy before planning their move. The lender should also be informed when the property’s occupancy actually changes or as otherwise required under the loan terms.

Your Rental Income Will Change

Once you move into the property and it is no longer rented, the rental income previously generated by the property will generally cease. This can change your household cash flow. If you are applying for new credit or restructuring the existing loan, the lender may assess your financial circumstances without that rental income. How lenders treat rental income varies, and they generally do not necessarily use the full gross rental amount when assessing borrowing capacity.

Tax Treatment May Also Change

Changing an investment property into your home can have taxation implications. For example, expenses and interest associated with a property used to produce assessable rental income may be treated differently once the property is used privately. Capital gains tax considerations may also arise when a property has been used for both investment and private purposes. Tax outcomes depend on individual circumstances and applicable rules. A mortgage broker or lender should not be relied upon as a substitute for personalised taxation advice. An appropriately qualified tax professional can explain how changing the property’s use may affect your circumstances.

What Happens to Your Landlord Insurance?

Insurance is another area that may need attention when you move into a former investment property. Landlord insurance is generally designed around risks associated with renting a property to tenants. Once you occupy the property yourself, your insurance requirements may change. You may need to update or replace existing cover with appropriate owner-occupier home and contents insurance. Insurance requirements can also form part of the conditions associated with a mortgage, so it is important to ensure appropriate cover remains in place.

Should You Tell Your Lender Before Moving In?

It can be useful to speak with your lender or mortgage broker before the change occurs. This allows you to understand whether the lender needs updated information, whether the loan classification can be changed and whether any rate, product or repayment implications apply. The requirements will depend on the particular lender and credit contract. Providing accurate information about how a mortgaged property is being used can help ensure the lender’s records remain current.

Can You Review Your Loan at the Same Time?

Changing how a property is used can provide an opportunity to review the existing loan, but a review does not mean refinancing is necessarily appropriate. You might consider the current interest rate, loan features, repayment structure, remaining term and applicable fees. If another loan is being considered, the costs and terms of both arrangements should be compared. Refinancing to another lender involves a new application and remains subject to eligibility, valuation, credit assessment and approval.

Moving into a property that was previously an investment changes its use, but it does not necessarily mean you need to replace or refinance the existing loan. Your lender may need to update the property’s classification from investment to owner occupied, and this could affect the applicable rate, product or other loan terms. Rental income, insurance arrangements and taxation considerations may also change. Before moving in, consider notifying your lender or broker and checking the requirements that apply to your existing loan. Where the change has taxation, tenancy or legal consequences, obtaining advice from an appropriately qualified professional can help you understand how those rules apply to your circumstances.