Home Loans vs. Commercial Property Loans in Melbourne

Your investment journey deserves some research, and even more when you are planning to finance a property. Home and commercial loans differ based on risks, terms, and conditions. See how both of these differ in the Melbourne property market.

Purpose and Use

Home loans are offered to those who want to purchase a residential property. Melbourne has seen a rise in property prices year-over-year. So, with home loans, buyers can enter the real estate market with a smaller down payment. According to the Australian Bureau of Statistics, $5.2 billion in home loans are issued to owner-occupiers (including first-home buyers loans in Melbourne)

Commercial loans are offered to business owners or investors who want to invest in offices or retail spaces to generate income. Obtaining these loans is very complicated and involves a higher risk.

Risk and Return

Home loans in Melbourne involve lower risk because of the stability of the residential properties market. The average rental yield for houses in Melbourne is approximately 7.32% to 7.8% in different suburbs.

On the other hand, commercial loans offer higher returns on rentals ranging from 5% to 12%. But, it also comes with a greater risk as businesses are more likely to suffer economic hiccups.

Loan Assessment Criteria

The home loan process in Melbourne is simple, quick, and easy. Lenders just evaluate a borrower’s creditworthiness based on income, employment stability, and credit history.

On the contrary, the commercial property loan process is more detailed and hectic. Lenders evaluate the borrower’s credit history and potential income the property will generate. Borrowers must show a solid business plan and projected cash flow for approval.

Interest Rates and Loan Terms

Home investment loans in Melbourne are planned for longer terms of about 15-30 years with lower interest rates, averaging around 5.5%. This allows for smaller, manageable monthly payments.

Commercial property loans usually have shorter terms ranging from 5 – 20 years at higher interest rates, ranging from 6-8%. Borrowers might also find it challenging at the end of the term due to balloon payments.

Make the Right Choice!

Once all the differences are crystal clear, you can apply for a loan that best suits your needs. It’s always a good idea to consult finance experts, who can help you make the right decision based on your financial goals!