Good investment loans can make the process of purchasing a property for investment purposes straightforward and easy to manage during the life of your investment. Varying in complexity, the investment loan you choose will depend on what you are trying to achieve. One of our experienced consultants can help set you up with the right investment loan.
What do you need to consider when looking for an investment loan?
The structure of the loan and features that you choose can affect your ability to successfully manage your investment, build equity over time or deal with time without tenants. When choosing an investment loan you should consider the following:
- what features do you need?
- can you get an interest only loan?
- should you or can you fix your loan rate?
- how much are you eligible to borrow?
- how much can you afford to borrow?
- how much can you afford to repay?
- do you understand how to use the loan to ensure you maintain eligibility for tax deductions?
What are the different types of investment loans?
Let’s take a look at a few of the more common types of investment loans:
Principal and interest – is the most common loan taken and usually used by owner-occupiers who have the intention of eventually owning the property. Every regular payment pays off interest and a proportion of the principal borrowed.
Interest only – is usually the preferred loan type for investors who usually only want to pay off the interest which is generally tax deductible (principal repayments are not deductible). The interest only period can vary depending on the lender from 1 to 10 years and often banks will allow this period to be renegotiated.
Line of Credit – with this type of borrowing you can access the equity in a property as the amount owed is paid down and redrawn numerous times for different purposes. This can be useful if the loan is not fully drawn down so that there is a buffer available to cover any shortfalls in rental payments over the term of the investment. They are also useful to have pre-approved so that you have the funds available to purchase your next property investment.