Investment Property Finance
The main problem is there are potentially more property loans to choose from than there are investment properties.
With so much choice its hard to know where to begin. However, one thing is for sure – you shouldn’t go with the first lender to approve your application. Gone are the days when borrowers visited the bank manager cap in hand. Today most lenders are keen to visit you. Borrowers today are in the driver’s seat, so take advantage of it!
What do you want?
Questions that every lender will ask you are: –
- How much do you need to borrow ?
- What will the loan represent as a proportion of the property value (i.e. the LVR)?
- Are you borrowing for investment or personal purposes?
- How long do you intend borrowing for?
- Are joint incomes required to meet repayments?
- Which State/Territory is the property located?
You may also have special needs –
buying the property through a unit trust or company structure, or you could be buying land with a view to building a house.
So, lets look at loan structures. Loans can be : –
- Standard Amortising;
- Line of Credit (Equity)
- Amortising Equity; or
- Standard Interest Only
One way of describing the structure of the loan is the repayment schedule. The repayment schedule is defined by the term of the loan (say 25 years) and the types of payments you make – interest only, or principal plus interest. A traditional principal and interest loan for the purpose of buying the property (and nothing but the property), is known as a Standard Amortising Loan.
More and more borrowers are taking advantage of the equity in their property by using it as a security to borrow for other purposes. Loans that allow you to use a mortgage for purposes other than investing in property fall into the “Line of Credit” category. These loans dont have a strict repayment schedule therefore, work best for borrowers who have plenty of self discipline.
Amortising Equity Loans let you borrow against the equity you have built up against your home. However, each time you change the loan amount, your repayment schedule is reset. You pay principal and interest repayments on the basis of your specified terms. These loans are good for borrowers who have built up equity in their home but like (or need) the repayment discipline that an amortising loan provides.
If you don’t need to build up equity in a property, you may choose to use an interest only loan. Investors typically use interest only loans to maximise tax deductibility over the life of the loan.
The final decision
The advantage of using a finance broker from our panel of affiliated investment property specialists is that you don’t have to do all the leg work yourself.