Taking out an investment property loan can be a great way to build your long-term wealth. An investment property in a good location is likely to grow in value over time, and you can also earn rental income off tenants. You can use that income to make some (or all) of your loan repayments.
However, there are some important things you need to understand before you apply. Firstly, lenders view investment property loans as higher risk. This means two things:
1) you’ll need to meet stricter application criteria, and
2) you’ll usually be charged a higher interest rate than you would with an owner-occupier home loan.
If you’re relying on tenant rental income to make your loan repayments, lenders will always consider that your investment property may be untenanted for a length of time. You need to be able to demonstrate that you can still afford your loan repayments if this happens.
What you need for an investment property loan application
You will usually need a higher deposit than you would for an owner-occupier loan. If you have equity (total or partial ownership) in your residential home, you can use that equity as your deposit on an investment property loan.
The policies of different lenders varies, but each will have a maximum loan-to-value ratio (LVR) that they are prepared to accept for an investment property loan.
The LVR is the amount of the loan expressed as a percentage of the value of the property. For example, if you want to borrow $480,000 for an investment property worth $600,000, your LVR would be 80% (i.e. $480,000 divided by $600,000). If this percentage falls within the lender’s maximum LVR and you can demonstrate that you can afford your repayments, your investment property loan should be approved.
Interest-only investment property loans
As the name suggests, interest-only investment property loans only require you to repay interest on the amount you borrow. The main benefit of an interest-only loan is that it has low repayments, so taking one out can allow you to buy an investment property sooner. An interest-only loan can also help you to afford a more expensive investment property.
Interest-only loans are available for terms of up to five years. After that time, you can apply to take out another interest-only loan, or your loan will usually revert to a standard principal and interest loan.
Principal and interest investment property loans
A principal and interest investment property loan has higher repayments than an interest-only loan because you’re repaying back the amount you borrowed (the principal) plus interest. Each repayment you make reduces the total amount you owe.
How we can help
At Wisebuy Investment Group in Newcastle, our experienced and licensed brokers can help you to find the right investment property loan. We can also help you with your application.
Contact us today for an obligation-free chat! We’ll take the time to understand your individual needs before providing you with appropriate advice. Our focus will be on finding the right investment property loan for your needs from over 60 Australian lenders.
And best of all, our service is free!