Looking for the right investment loan?
When you are planning to invest, looking for the right investment loan is highly important, your type of loan should suit your investment strategy to maximise the return you receive. Finding a loan with competitive rates and fees and at the same time giving you the flexibility you need for your investment is something our expert Mortgage Choice Melbourne brokers are happy to educate and assist you with.
Like an owner occupier, you can choose a basic or more feature-filled standard variable rate loan to fund an investment property. However there are certain loan options that can offer particular benefits to landlords.
For tailored advice, book a 10 minute phone chat with one of our Mortgage Choice Melbourne brokers to suggest the type of loan best suited to your individual situation, goals and budget.
Choosing the right investment loan
Make sure you get educated on the best type of investment loan and structure to suit your goals and what the benefits and risks are. Here are a few types of investment loans available that may suit your situation other than the common Standard Variable Rate loans where Principle and Interest repayments are made:
Fixed rate loans / Interest In Advance
Many investors choose to fix their mortgage interest rate. With a fixed rate loan, the annual interest charge for each year is known upfront. The majority of borrowers will make this repayment on a monthly basis however an Annual Interest In Advance Repayment is also an option for some clients. This means landlords can prepay up to 12 months of interest each year - a cost that may be claimed as a tax deduction.
This can be a way of evening out your tax bill in years when income from other sources (such as wage and salary payments) is higher than normal. The success of this strategy hinges on having sufficient cash to prepay interest, and it’s always sensible to speak with your tax advisor to ensure you can claim the full interest charge as an expense in the current tax year.
Interest only loans
Unlike most other loan types, interest only loans involve payments that solely include loan interest - there is no repayment of the principal. The principal is repaid when the property is sold. As some investors aim to make a profit on the sale of the property (anticipating potential capital growth) rather than eventually owning it outright, an interest only loan can be appealing for landlords.
This type of loan offers two key advantages - first, the monthly repayments are usually less than for a principal and interest loan. Secondly, all your repayments are tax deductible as they don’t involve capital repayments of the loan. Most loans permit interest only payments for a limited period, generally up to five years. After this you will need to renegotiate the loan payments with your lender.
Line of credit
A line of credit loan allows borrowers to withdraw cash from their loan up to a certain limit as and when they choose. Each month the loan balance is reduced by the amount of cash coming in and increased by the amount paid for drawings, direct debits or cash withdrawals. There are usually no set repayments, so this loan is best suited to experienced investors with the discipline to manage the loan carefully.
Getting started
Before you start hunting for an investment property, it's worth considering several important factors:
1. Your current financial position
Are you well placed to afford an investment property, particularly during the inevitable periods of vacancy?
2. Can you afford a quality property?
Can you afford a property that will attract decent tenants and deliver healthy long term price increases? Do you know the best suburbs to invest in based on your budget?
3. Where are you heading?
Are you prepared, and can afford, to hold onto your investment for the long term? Will you need access to your capital (money invested) in the near future?
4. How much money will you need?
As with your home, purchasing an investment property can involve significant upfront costs and ongoing maintenance expenses.
5. How much can you afford to borrow?
Getting an idea of your borrowing capacity is the first step in finding out the type of property and location you can afford.
6. Do you need a cash deposit?
If you own your home, did you know you may be able to use home equity instead of a cash deposit?
7. Do you have a team of trusted investment advisers?
Surrounding yourself with experienced advisers who understand the best way to structure your investment to maximise tax effectiveness and also minimise your risk for asset protection purposes is a critical first step in the creation of long term wealth. Our office can introduce you to trusted advisers across all fields of property investment including services such as:
- Solicitors - to ensure you set up the ownership structure correctly to maximise asset protection. A solicitor can also assist with executing your Will to ensure your beneficiaries are looked after.
- Accountants - experienced in minimising tax and they will provide advice on loan structure and ownership
- Quantity Surveyors - to provide a property Depreciation Schedule for tax purposes
- Property Buying Services - Buyer Agents to search, assess and negotiate your property purchase
- Property Managers - this is a critical part of the process to ensure your property is managed by an experienced agent to maximise your rental yield and pro-actively attend to maintenance issues
Get expert advice from your broker
Just as it is important to research the market for the ideal investment property, it makes sense to shop around for a loan that offers competitive rates and fees while still providing the flexibility you need to make the most of your investment.
This is where the expert advice of our brokers can be extremely valuable. We can compare hundreds of loans from a wide choice of lenders and advise you on the finer details of each option that could save you money in the long term.
Investment mortgages may come with a slightly higher interest rate, although this will depend on the lender, the area in which you buy and the type of property you select. However, broadly speaking, your investment will be similar to a home loan - you will be required to make repayments based on the loan principal, interest rate and term.
Book a 10 minute phone meeting with a consultant of your choice at a time that suits you or call our Mortgage Choice Melbourne office on 03 8602 6777!
Unlock equity to invest
If you’ve owned your home for a few years, there’s a good chance you’ve built up some reasonable equity, and this can be a valuable resource when it comes to property investment.
We can help you to find out how much equity you have in your home, and how you might be able to use it to own an investment property sooner. Watch this quick video to find out more.
Ever considered investing in commercial property?
Property investor guide
Download a Property investor guide which will walk you through all of the steps associated with the purchase of an investment property.
