Investment Property Loans

When you are purchasing a home, you are purchasing a place to live in (owner occupied property). When purchasing an investment property you are purchasing for different reasons. You will be looking at rental return or income to invest in your future. The purpose of the loan is different and as a result, lenders treat it differently.

Investment loans generally can have slightly higher interest rates than a standard home loan. 

Generally you need 10% of the purchase price plus extra to cover any costs such as stamp duty and lender mortgage insurance costs associated with purchasing the property. However this can vary depending on the lender, your circumstances, and the property you are purchasing. 

To avoid paying lenders mortgage insurance you will generally need in excess to 20% deposit plus extra to cover costs such as stamp duty

Deposit can be either cash or using equity in existing property.

When you own an investment property, there are costs associated with it such as outgoings, maintenance and loan repayments. When those costs exceed the rental income you receive from the property it is said to be negatively geared. This means your weekly cash flow is negative, relying on other income sources to meet the loan commitment. Purchasing a property using negative gearing should be approached with caution.   

The opposite to negative gearing is positive gearing as a alternative strategy. This is when the rental income you receive from the property is more than the costs associated with it. This means your weekly cash flow is positive, and does not rely on alternative income sources to meet the loan commitment. Many larger scale property investors use this strategy

Yes you can, however if you have a regular industry super fund you will need to change this to a Self Managed Super fund (SMSF). Regular industry funds have limitations and you are not able to purchase property through them. 

Do your research, get professional advice and understand loan products available to you and explore all your options. Your level of income, level of savings, household budgets, and any changes to your circumstances in the future are all key factors in determining what loan type is best for you.

Deciding between variable and fixed interest rates is a personal preference. We can talk you through the options currently on offer and help you with this decision.

Variable rate home loans are generally more flexible and have more features than fixed rate home loans. The interest rate fluctuates with the market ensuring you always have a market rate for your home loan.

Features of variable loans can include such things as redraw facilities and extra repayment options. 

Fixed Rate home loans ensure you have the same repayment over a fixed term. You lock in your interest rate and initial repayment over an initial agreed term usually between 1 and 3 years. Fixed loans have less flexibility and often have restrictions to redraws or extra repayments over the fixed term.  If you look at breaking your fixed rate home loan, you will generally have to pay a break cost which can be quite significant.

Redraw is a loan feature that allows you to access any early repayments made on your loan repayments on your loan. For example, if you made $5,000 in advance repayments on your home loan, a redraw feature allows you to get access to the $5,000 of repayments, put $5,000 back into your bank account, and increases your loan back to where it previously was as if you had not made those repayments in the first place.

An offset account is a separate bank account that is linked to your loan. For any funds held in your bank account, automatically offsets against the loan when it comes to the bank paying interest. For example, if your loan balance is $400,000 and you have $5,000 in your offset account, you only pay interest on $395,000.

A loan redraw feature is generally availiable in all basic home loan products. An offset is seen as a premium feature, generally home loan prducts that allow this feature often come with additional fees and higher interest rates compared to the basic loan products. 

In the fine print of many lenders terms and conditions a lender could refuse a redraw request or ask you for further information on use of the funds. This does not happen often, but can happen. If you want full peace of mind in gaining access to your additional repayments or excess savings, then its best to get an offset feature.