As the savvy property baron knows, sometimes you need to spend money to make money. For the unfamiliar, this is where the concept of investment loans comes in.
Once you’ve managed to successfully purchase your first home, there usually comes a point where Aussies start looking at other avenues to increase their income. Suddenly, property becomes less of an obligation and pressure point, and begins to become an appealing option in terms of increasing the bottom line of your bank account every week.
There are many reasons as to why the average Australian would want to start investing in property. For some, it’s about building a financial safety net and enjoying a comfortable retirement, while for others it’s an attractive way to lower their tax obligations. When you’re ready to get the ball rolling, the first port of call is often visiting your mortgage broker to discuss options for investment loans.
Understanding How Investment Loans Work
When we refer to investment properties, the term is usually applied to houses, apartments or townhouses that investors buy, and in turn rent out to another person to live in. It is important to note that there are many different types of property you can invest in, such as commercial property that is rented to a business.
Property has long been considered to be less volatile than shares or other investment opportunities. Pricing fluctuation is less likely to affect you, particularly if you have tenants committed for six or twelve months at a fixed price or rental amount. However, getting the finance to dip your toes in this type of property tool does require a specific type of assessment, and the criteria linked to investment loans does differ from traditional owner-occupier loan products.
While access to investment loans can help increase your returns or allow you to buy bigger investments, such as more property, it’s not a short term strategy that should be approached lightheartedly – after all, the more you spend, the more you have to lose. However, there may also be tax benefits if you’re on a high marginal tax rate, such as tax deductions on interest payments, which is why many investors use property as a means to generate wealth.
As investment properties are generally seen as higher risk in the eyes of a lending institute, they tend to have more strict requirements for approval, and higher fees and charges than owner occupier loans. Many investors opt for an interest-only loan, as it can help to lower mortgage repayments and can provide options for tax deductions.
However, it’s important to note that your lender will only allow an interest-only loan for a set period of time, before your loan will revert to principal and interest. At this point, many people opt to refinance to a different interest only loan as a means to keep the perks ticking along.
Thankfully, getting approved for investment loans is a similar process to a standard home loan in many other ways. As a general rule, the basic lending criteria linked to these types of loan products include a requirement of 5-10% of genuine savings, a good credit history and stable employment. Some lending providers also like to see a solid amount of equity in your other properties if this is not your first foray into becoming a landlord.
If you’re weighing up which type of investment loan is right for you, it’s worth speaking to the professionals first – particularly if you have other loans already tied to your name. Not only are reputable mortgage brokers highly specialised gurus who know the ins and outs of loan products, but they can also help to guide you on what the preferred option is for your own individual set of circumstances – but where do you find one?
Your Guide For Navigating The World Of Home Loans
With a background in banking, finance, business development and project management, there’s no better advocate to have on your team than Nikki Berzin. As a fully qualified mortgage broker and director of Cherry Lending & Finance, Nikki is passionate about all things finance, and empowering her clients with the tools to hit their property goals is what she does best.
If you’re looking to get into your first home, purchase an investment property or even want to look at your options for refinancing, the first step is starting the conversation. Get in touch with Nikki today, or call her directly on 0427 374 155 to bring your mortgage dreams to life.
Disclaimer: Your full financial needs and requirements need to be assessed prior to any offer or acceptance of a loan product. Subject to lenders terms and conditions, fees and charges and eligibility apply.
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