Financing a Holiday Home on a FIFO Engineer's Income

Your FIFO income gives you solid borrowing power.

But when you're looking at a holiday home on top of your main residence, lenders get particular about how they assess the deal. They want to know if you're owner occupying it, renting it out, or somewhere in between. The answer changes your interest rate, your loan to value ratio limits, and whether you can claim the mortgage offset account tax-effectively.

Investment Loan or Owner Occupied?

A holiday home sits in a grey area between investment and owner occupied lending. If you use it exclusively for yourself and family, most lenders will still classify it as an investment loan because it's not your principal place of residence. That means a higher variable interest rate and potentially stricter serviceability requirements. If you rent it out for part of the year, it's definitely an investment property, but now you can claim interest and expenses against rental income.

Consider a FIFO mining engineer who owns a home in Perth and wants to buy a place in Margaret River for time off between swings. If he lives there six weeks a year and leaves it empty otherwise, lenders treat it as investment. The rate goes up by 0.20% to 0.40% compared to owner occupied, and he gets no tax deductions because there's no income. If he rents it out through a holiday letting agent for 30 weeks a year and uses it himself for the remainder, the loan is still investment-grade, but now the rental income helps with serviceability and he can claim interest, rates, and maintenance against that income.

The difference between those two scenarios is substantial. Rental income at 80% weighting can add $50,000 to $80,000 to your borrowing capacity depending on the property's return. That might be the margin between securing the home loan or falling short on serviceability.

How Lenders Assess Borrowing Capacity for a Second Property

Lenders calculate your borrowing capacity based on net income after tax, minus existing commitments, minus a buffer. When you're applying for a holiday home loan while keeping your primary residence, they assess the new loan amount plus the existing mortgage, plus any other debts. Your FIFO income gets counted, but some lenders still apply discounts if your employment contract is casual or fixed-term rather than permanent.

In a scenario where a mining engineer earns $180,000 annually on a two-year contract, already holds a $450,000 mortgage on an owner occupied home loan in Brisbane, and wants to borrow $600,000 for a holiday property on the Sunshine Coast, most lenders will assess at a rate of around 3% above the actual variable rate. If rental income is $35,000 per year, they'll count $28,000 of it. The existing mortgage repayments, the new loan repayments at the buffered rate, and any personal loans or credit limits all reduce available capacity. Without rental income, many FIFO engineers hit their limit at around 5 to 5.5 times gross income when they already have a mortgage.

Rental income changes the picture. Even modest short-term letting can push borrowing capacity up by $100,000 or more. That's often the difference between needing a bigger deposit or proceeding with what you've already saved.

Fixed Rate, Variable Rate, or Split for Holiday Properties

You can structure a holiday home loan the same way you'd structure any mortgage. Variable gives you the offset account benefit, which matters if you're parking savings between swings. Fixed gives you certainty on repayments, which helps if cash flow is tight and you're not building a large offset balance. A split loan lets you fix part of the loan amount and keep part variable with offset access.

For FIFO engineers, the offset account usually wins. You're earning well, but income is lumpy, and having cash accessible in an account that reduces interest daily gives you flexibility without locking funds into the loan. If you fix the whole amount, any extra repayments often go into a redraw facility rather than an offset, and redraw doesn't reduce interest in real time.

If you're renting the holiday property out and claiming interest as a tax deduction, the offset account needs to be structured carefully. You can't blend personal savings with an investment loan offset and expect the ATO to accept the full interest claim. You'll want the offset linked only to funds related to that investment, or you'll want to keep the loan without offset and direct your savings elsewhere.

Deposit Requirements and Lenders Mortgage Insurance

Most lenders want at least a 10% deposit for a holiday home classified as investment. Some will go to 90% loan to value ratio, but that triggers Lenders Mortgage Insurance, and LMI on investment loans costs more than on owner occupied. A $600,000 loan at 90% LVR could mean $18,000 to $25,000 in LMI depending on your deposit size and lender.

If you've got equity in your primary residence, you can use that instead of cash. A FIFO engineer with a Perth home worth $750,000 and a mortgage of $400,000 has $350,000 in equity. Lenders will let you borrow against up to 80% of that property's value, which is $600,000, minus the existing $400,000 debt, leaving $200,000 available. That's enough for a deposit on a $600,000 holiday home without touching your offset account or selling anything.

Using equity keeps your cash flow intact, but it also means your primary residence is securing both loans. If something goes wrong with the holiday property, both are at risk. Some FIFO engineers prefer to keep the loans separate and use genuine savings for the deposit on the second property, even if it means a smaller purchase or waiting longer.

Interest Only Loans for Holiday Homes

An interest only loan keeps repayments lower, which helps if rental income is seasonal or you're managing two mortgages on one income. You're not building equity in the holiday home during the interest only period, but you're freeing up cash flow for other priorities.

FIFO engineers often use interest only on investment properties and principal and interest on their owner occupied home. That way they're building equity where they live, keeping deductible debt higher on the investment, and maximising offset benefits on both. After the interest only period ends, usually five years, the loan reverts to principal and interest unless you negotiate an extension.

Not all lenders offer interest only on holiday homes, especially if there's no rental income. If the property sits empty most of the year, they see it as higher risk and prefer principal and interest from the start.

What to Know Before You Apply for a Home Loan

Get pre-approval before you start looking seriously. Holiday property markets move quickly in areas like the Gold Coast hinterland or the South West of WA, and you don't want to find the right place only to discover your borrowing capacity is $100,000 less than you thought. Pre-approval also tells you whether you need to increase your deposit, adjust your purchase price, or consider a different loan structure.

Have a clear answer ready on how you'll use the property. If you're planning to rent it out, bring rental appraisals and evidence of expected income. If it's purely personal, make sure your cash flow can handle the repayments without relying on any income from the property. Lenders will ask, and vague answers slow down the home loan application or lead to declines.

If you're planning to rent the holiday home short-term through platforms, some lenders treat that income more conservatively than long-term residential leases. They might only count 50% to 60% of projected short-term rental income, compared to 80% for a standard lease. That difference matters when you're tight on serviceability.

Call one of our team or book an appointment at a time that works for you. We'll walk through your situation, look at how lenders will assess your FIFO income, and structure the loan so you're not paying more than you need to or limiting your options down the line.

Frequently Asked Questions