Property Investment Loans

Property Investment Loans

Investing in residential property

Investing in residential property is a rising trend among Australians. Investing in properties is increasingly becoming another form of retirement planning. Investors rely on the capital appreciation in the value of the real estate to cover for the retirement. But before you go ahead, remember that the property which you choose is not going to be the only factor that will determine your success as an investor. Your investment loan will have a big impact on your cash flow and long-term returns.

Planning to invest in property

If you are going to invest in property successfully, it calls for one key ingredient- careful planning. A rental property is a substantial financial commitment and you can achieve the best results if you take the time to get good advice and plan carefully before you act.

When it comes to property investment loans, your borrowing capacity increases as lenders also consider rental income that you will receive. Some lenders may even charge a higher interest rate for investment properties because they involve more risk.

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Benefits of investing in property

  • Property investments bring in regular rental income. Unlike any other investment like a term deposit or shares, properties give the promise of delivering returns from the first day when it comes into the market.
  • You can claim a tax deduction for the expenses associated with owning and maintaining a rental property.
  • Unlike other investment options, rental properties bring in a steady income weekly, fortnightly or monthly.

Types of home loans

Fixed Loans

Simply put, fixed home loans have a fixed interest rate for a certain period of time. Fixing your interest rate removes the element of surprise as your repayment amount remains the same and does not fluctuate with the changing market conditions. Most common terms of Fixed rate are for 1 year, 2, and 3 years.

Split home loan

You have the liberty to choose between a fixed rate and a variable rate. However, if you want you may opt for a mixture of the two as well, known as a split loan. A split loan is the one where you divide the entire loan into two or more parts. You may choose any combination as long as the structure falls within the bank’s guidelines. For example, you may decide to have 3 splits for 2 years fixed rate, 4 years fixed rate, and a variable rate (or any conceivable structure). Values attributed to the each split must add up to the full loan amount. As each split is treated as a different loan account hence you have to make different repayments one repayment attributed to each split. It may sometimes become complicated to manage a split home loan. The most common form of a split loan is that of two splits, with half being a variable and the other half being fixed.

Variable Loans

In a variable home loan, interest rates vary over a period of time. The interest rate charged to your loan account is determined by the prevailing monetary policies of the Reserve Bank of Australia. The Reserve Bank of Australia sets the official cash rate and your home loan lender charges a certain margin over this cash rate. The resultant interest rate is known as the Variable rate you pay the repayments on. You can enjoy the advantage of lower repayments whenever the cash rate falls while when the cash rate rises you may have to pay a higher repayment. In a falling interest rate market, variable rates are usually higher than their fixed counterparts and vice versa.

Line of credit

A line of credit loan enables you to withdraw cash from your loan up to a certain limit as and when you choose. The loan balance changes every month because of cash coming in or the cash going out in the form of direct debits and withdrawals. This type of loan is better suited for experienced investors.

Repayment Types

Principal and Interest (P&I)

In Principal and Interest loans the repayments made comprise of both the Interest and the principal. This sort of repayment results in consistent amortisation of the outstanding principal amount over the term of the loan. As the main goal in taking out a home loan is to have it fully repaid during the working life of an individual, hence thisis the most preferred type of a repayment amongst home loan borrowers.

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Interest only loans

Interest only loans include repayments that only comprise of the interest, unlike other loan types. The banks may allow the clients to choose a certain number of years from the total loan term to go as Interest only (usually not more than 15, most common being 1-5 years). This means during the interest only period the bank will not demand the clients to repay any principal amount in the loan. The bank charges only the interest accrued at the end of the month. This type of repayment type is selected by the clients when they feel that they may need more cash flow in the initial few years of taking out the loan in order to decorate their newly acquired possession. This results in the clients having an increased cash flow during those initial years of the home loan as they need to pay only the interest amount. However, it should be noted that after the expiry of the interest only period, the outstanding Principal will then be concentrated in a much shorter time frame resulting in considerably high monthly installment.

Interest In advance Loans

As is understood, under an interest in the advance loan, the mortgage interest rate is paid in advance. The investors have the option of prepaying their annual interest in one instalment and can claim a tax deduction on the same. However, it would be advisable to talk to your tax advisor to know whether you can claim the entire interest as an expense in the current year. If you’re unsure how an investment loan would potentially impact your financial circumstances, our mortgage analysts can help you to explore the possible ways.

What can we do for you?

If you have decided to invest in an investment property, we advise you to consult our mortgage analysts, who are going to help you in choosing a suitable loan that will help minimise your risk and maximise your return. Here is what we can do for you-

  1. We will sit down with you and get a thorough understanding of your circumstances, needs and goals.
  2. We will help you compare a range of home loans from a wide choice of lenders and major banks to help you work out the options that suit you without you having to do any of the legwork.
  3. We will give you a clear comparison between different investment loans.
  4. We can help you calculate how much you can borrow and your likely monthly repayments so you know the price range you can afford to invest in.
  5. We will give you a clear explanation of all the costs associated with your loan.
  6. We will prepare the paperwork, lodge the application, and take care of all the running around.
  7. We will negotiate the right deal for your needs with the lenders, whom we work closely with.
  8. We will liaise with your lender and support you throughout the entire application, approval, and settlement process.

Opting for a relevant loan to finance your investment is important because a flexible, well-featured mortgage is as important as researching the market for the ideal investment property.

At Apt Mortgages, we let you know the maximum purchase price you may go for your investment purchase and we shop for a loan at competitive rates and fees which can help you make the better use of your investment.

Your investment loan will work very much in the same way as a home loan but there are some options which can offer additional benefits.

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