With so many choices available for investment loans it’s hard to know exactly where to begin. Choosing the right investment loan can prove just as difficult as finding the right investment property. Though one thing is for sure, explore your options, don’t just settle for the first lender to approve your application.
Interest rates are no longer the singular most important feature of a loan, as they represent only one part of the loan. There are many other factors that can help reduce your repayments including the flexibility to make extra repayments, fees, redraw and gearing structure.
Begin with the end in mind?
Allocate time to outline your home loan requirements and preferences:
- Begin by knowing how much you can afford rather than how much you can borrow. In other words know your budget rather than being maxed out.
- Work out your lending structure; e.g. are you borrowing in personal names, a company name or a trust name?
- Identify the loan features that are important to you; e.g. do you want to be able to make additional repayments or do you prefer fixed amounts or would you like a redraw option?
- Then find the best rate that works with the product selection.
One way to help you find an investment loan that meets your needs is to use a mortgage broker. If you are happy to have a professional assist you in the selection process, it is a good idea to have an understanding of the criteria they are using to eliminate and include lenders.
Narrow down your choices. What do you really want?
With such a vast array of home loans on offer it is wise to consider your preferences before you set out looking. This will give you a clear objective of what you need, helping you to stay focussed and not be distracted by cheap introductory rates or clever bank marketing (which may cost you more in the long run).
Questions that every lender will ask:
- How much do you need to borrow?
- What will the loan represent as a proportion of the property value (i.e. the Loan to Valuation Ratio (LVR))?
- Are you borrowing for investment or personal purposes?
- How long do you intend borrowing for?
- Are joint incomes required to meet repayments?
- Which State/Territory is the property located?
You may also have specific requirements - buying the property through a unit trust or company structure, or you could be buying land with a view to building a house.
Loan Functionality
It is important to consider loan structure when selecting your loan. Loan structure can affect your flexibility within your investment finance and the ability to vary your loan. Various loan structures:
- Principle & Interest Loan also known as Standard Amortising; A traditional principle and interest loan is mainly used for the sole purpose of buying a property. This is tailored to owner occupied properties to pay down the principle as soon as possible.
- Line of Credit (Equity) Loans that allow the borrower to use a mortgage for other purposes other than just investing in a property. These loans don’t have a strict repayment program and work well for borrowers who have self-control and want to continue investing in the future with flexibility.
- Interest Based Loans also known as Amortising Equity; For these loans you pay principal and interest repayments on the basis of your terms. These loans also let you borrow against equity you have against your home, although when you change your loan amount your repayment schedule is rearranged.
- Standard Interest Only These loans are the maximum tax deductible loans over the life of the loan. If you don’t need to build equity on the property you may choose to use this loan.
The final decision
Working through the checklist above is a good starting point though why not leverage on our vast experience and let us help find the right home loan for you. Everyone has different financial needs and it is a simple fact that some products on the market have more features than others. Let us do the hard work for you. Our Finance Valet will aim to find the best home loan to meet your needs.