There are many important factors to consider before you invest in property, such as
how to choose the best investment loan that meets your individual needs and
goals. Securing the right investment loan for your finance needs at the most
competitive offer can make all the difference between a strong and poor
loans vary depending on what you are looking to achieve, and can be as simple
or complex as needed to help you make effective use of tax, gearing and
also make good use of loan features such as redraw, offset and additional
repayments to help manage your investment loan.
Addisons can show you how you can
invest with the right loan and guide you through the entire process.
only the interest on the principal during the term of the loan; therefore,
repayments are lower than with a standard principal and interest loan. At the
end of the interest only period - usually one to five years - you have the
option of making Principal and Interest repayments over the remaining term of
the loan. Many investors will continue to ‘roll-over’ the interest only period
whilst they have other home/personal loans to repay. We advise you to discuss
what is most suitable for your circumstance with your accountant.
Reasons why we like IO loans for investment property:
- - Lower repayments initially
so you have more money to pay down other debts or renovate/improve the
- - Cuts the cost of buying a
residential investment property in the short-term, which could allow you
to make greater contributions to your principal place of residence.
be aware of:
- - There will be sudden
increase in repayments at the end of the Interest Only period and the loan
converts to Principal and Interest repayments
- - Lenders will assess your
ability to repay the loan only on the principal and interest repayments.
This can reduce your borrowing power, as these repayments will be higher
than a loan on Principal and Interest for the full term.
Variable Rate (SVR)
variable rate loans are predominately used for purchasing owner occupied or
investment properties where residential property is available as security. This
is a flexible loan with a low upfront fee and a competitive variable interest
rate. This loan also allows you to benefit from market rates when they are
lower. Most banks now offer discounts on their SVR of between 0.5% - 1.00%
through their professional packages depending on the level of borrowing.
Reasons why we like SVR loans for investment property:
- Repayments fall when official interest rates fall
- - Standard variable loans
offer flexibility and additional features, such as the ability to make
additional payments, such as a redraw facility (take out any extra money
that you have put in), low introductory or honeymoon rates
- - Allows careful borrowers to
pay off the mortgage quickly by not having any penalty for advance payouts
- - Ongoing lower interest rates
under the professional package.
Things to be aware of:
- - Repayments rise when
official interest rates rise
- - Higher annual fees (if
Professional Package is applicable).
your finances with an all-in-one account that puts you in control of your
equity. By combining your Home Loan, daily spending and savings, the Viridian
Line of Credit enables you to manage your financial affairs, so you can pay
your loan off faster. Also gives the property investor flexibility to take
advantage of opportunities as they arise. LOC loans are interest only with the
ability to repay or redraw up to the limit or down to $0 at any time.
Reasons why we like LOC for investment property:
- - Can use the money you need
and pay it back when you have the ability to Offers flexibility
- - Able to take advantage of
investment opportunities when they arise.
be aware of:
- - Possibly reduces equity in
your residential property
- - Usually slightly higher
- - Need to be disciplined to
make principal payments regularly
- - Can be very expensive if not
Rate (Principal and Interest or Interest Only) loans
rate loan is a loan that has a fixed interest rate and therefore fixed loan
repayments. The time period of these loans can vary, but you can usually “lock
in” your repayments for between 1-5 years. Although the fixed rate period may
be 3 years, the total length of the loan itself may be 25 or 30 years. At the
end of the fixed loan period you can decide whether to fix the loan again for
another period of time at the current market rates or convert the loan to a
variable interest rate for the remaining time left of the loan.
Reasons why we like Fixed Rate Loans for investment
- - Repayments do not rise if
the official interest rate rises
- - Provides peace of mind for
borrowers concerned about rate rises
- - Allows more precise
be aware of:
- - Repayments do not fall if
- - Allows only limited
- - Penalises
early payout of the loan if the fixed rate has fallen.
LOAN FEATURES TO CONSIDER:
1. Offset account
This is a
separate account that is attached to a loan account. The balance of the offset
account is deducted from the balance owing on the loan account when calculating
the daily interest charge. For example, a borrower with a $300,000 mortgage and
$10,000 in an offset account will only be charged interest on $290,000 and not
$300,000. Some products do not offer 100% offset, while others may require a
minimum balance in the account before the offset applies.
2. Redraw facility
borrowers to access extra payments that have been made. This money can then be
used for a variety of purposes including a holiday, furniture or car. Some
lenders have a minimum redraw amount and may also charge a fee per redraw.
borrower to increase the limit on a home loan, using the equity in your
property for other needs (e.g. renovations).
4. Additional repayments
payments that you make which are above the standard repayment for your loan. So
for example, a $400,000 loan with a 6% interest rate requires a monthly
repayment of $2,399. If you want to pay the loan off quickly and reduce the
interest bill, you might make monthly payments of $2,800, which would include
an extra repayment of $401.
5. Direct salary credit
your salary to be paid directly into your home loan account. This is an
advantage if you are not a disciplined saver.
6. Repayment holiday
feature offers a complete holiday from repayments or a period of reduced
repayments. This can be especially useful during career changes or breaks such
as maternity leave.
7. Switch to fixed rate
the borrower to switch from a variable to a fixed rate loan.
8. Loan portability
you to take an existing loan to a different property when you move (Saves you
on Mortgage Stamp Duty).