There are a variety of effective investment finance strategies available to help investors get the most out of their investment properties. We'll outline a few of the most common ones, who they can suit and how to go about securing them.
Principle and interest loans
These are standard investment loans, usually paid over a term of 25-30 years, where you borrow a certain percentage of the property and the loan is secured against it. You pay off both the interest calculated on your loan, and the principal - the amount that you actually borrowed in the first place.
If structured to be interest-only, this type of loan can help those who have no other debts, including the home loan on their residential property.
Interest-only loans
Under this type of loan, you pay off only the interest calculated on your mortgage, not the principal. This lets you take advantage of the fact that interest is tax deductible on investment property finance, as you can pay off the principal on your other home loan while technically saving money purely paying interest off your investment mortgage.
Normally, you would have to cover living costs, bills and mortgage payments with your after tax dollars. But in this case, the government is effectively helping you pay off your loan by letting you claim interest payments for tax purposes.
Fixed versus variable rate
This largely depends on the market. Fixing your interest rate can give you certainty, but if interest rates are dropping, it may be more advantageous to have a variable rate and capitalise on this.
Alternatively, you can go for what's known as a 'blended strategy'. This can work for those who have the capacity to pay more off their mortgage, as there is a limit to how much of the principal you can pay on a fixed rate loan. Through this approach, you would put a significant amount of the loan on a fixed rate, thereby protecting it from rate movements, while putting the rest on a variable rate and paying more of that sum off.
Determining what you need, and financing it
The question is, how do you work out what you actually need and how do you get the financing for it? Typically, you would use a broker or a property consultant, and work within the context of your strategy, long-term goals and financial circumstances to secure the right loan product.
A professional can often be more effective at securing a favourable loan. Some lenders can offer not only better products, but carry out better valuations and even get discounts on loan amounts. Brokers can use their knowledge and experience to find this for you, as well as make sure the loan is structured properly.
For instance, at DPN, we can secure for doctors and other professionals loans that are as high as 95 per cent of a property's value for residential homes, and 90 per cent for investment properties, with no lenders mortgage insurance. Those inside the industry can often secure better deals.
