What is the difference between investor and owner-occupier loan rates?

Banks classify mortgages into four buckets: owner-occupier P&I (cheapest), owner-occupier interest-only, investor P&I, investor interest-only (most expensive). The rate premium reflects APRA's higher risk weighting for investor + IO loans plus the banks' own credit + portfolio considerations.

Typical premiums (2026 ballpark): owner-occupier P&I 6.20%, owner-occupier IO 6.40%, investor P&I 6.60%, investor IO 6.85%. The full owner-occupier-P&I to investor-IO spread can reach 0.65%.

Why IO costs more: IO loans don't pay down principal, so the bank carries higher exposure for longer. APRA capped new IO lending at 30% of total new loans in 2017 to limit risk; this also keeps IO rates above P&I.

Strategic IO use: investors choose IO for tax efficiency (interest is fully deductible vs principal which isn't) + cashflow management (lower repayments while building portfolio). Trade-off: at IO term end (typically 5 years) the loan rolls to P&I with higher repayments, or you negotiate IO extension at higher rates again.