Choosing the right investment property loan is just as important as choosing the right investment property. It helps you to maximise your return on investment (ROI).
Here are our top 6 tips for choosing an investment property loan.
Tip 1: Understand your investment strategy
There are 3 ways to make money on an investment property:
1) rental income from tenants.
2) capital growth over time (for example, if market prices increase or you renovate the property to improve its value).
3) reducing the amount of tax you pay (via negative gearing).
Which of these strategies is most important to you?
It’s important to understand your investment strategy as it can influence the type of investment property loan you should choose.
Tip 2: Understand the different types of investment property loans available
There are 2 basic types of investment property loans:
1) principal and interest.
This is a standard loan where your repayments cover both the amount you borrow (which is called ‘the principal’ in financial jargon) plus interest.
2) interest-only.
This is where your repayments only cover the loan interest for up to 5 years. At the end of the interest-only term, the loan usually reverts to a principal and interest loan (or you can refinance to another interest-only loan).
Interest-only loans have lower repayments than principal and interest loans and they allow you to maximise your tax-deductible interest expense.
Tip 3: Use the equity in your home to secure your investment property loan
If you already own (or are paying off) your own home, you can use the equity (ownership) that you have in your home to help you secure an investment property loan.
Tip 4: Research comparison rates on different investment property loans
The comparison rate is displayed beside the loan interest rate. It includes loan fees as well as the interest rate. The loan with the lowest comparison rate is the cheapest finance you can potentially get.
Tip 5: Look at loan features
Different loans have different features, like offset accounts or redraw facilities. It’s important to choose a loan that has the features you need. You may be charged fees for some loan features, but if the benefit of a feature outweighs its cost, then it may be worthwhile.
Tip 6: Talk to a mortgage broker
Mortgage brokers help borrowers to arrange loans with lenders. Importantly, they work for borrowers, not lenders. They understand the different types of loans on the market and they can save you the time and hassle of researching the market yourself.
How we can help
If you’re looking to take out an investment property loan our expert Newcastle mortgage brokers can help. We can also help you with your loan application.
We service a diverse range of clients in the popular Newcastle, Lake Macquarie and Maitland areas. Our licensed brokers work with more than 60 lenders in the Australian market.
Contact us today for an obligation-free chat to find out more.
