Yahoo Finance Comparing and applying for an investment property loan
An investment property is a great asset and can be incredibly rewarding.
With interest rates at record lows, now is a great time to step up and make property work for you.
A mortgage for an investment property is surprisingly easier to obtain than a home loan for an owner occupier.
If you plan on buying a property that you'll rent out, then the rental income goes towards the mortgage repayments so the bank calculates this as a lesser risk loan than a mortgage for an owner occupier.
Here's breakdown of what you need to know and consider in order to compare interest rates and get the best property investment loan for you.
1. Know what you want
First up you need to decide what type of investment you’re after. Your two main choices are ‘capital growth’ or ‘rental property,’ although the two can often overlap.
Is your primary focus capital gain? Then understand the market and be aware of any hidden costs associated with maintenance, renovating or remodelling, and always add 10 per cent to what you perceive these costs to be.
If your goal is to have a regular income from your investment, you need to research rental prices and compare them to your potential mortgage repayment costs.
Top tip: remember to allow for maintenance costs and council rates in your equations, and make sure they still balance in the positive. This is unless you are intending to offset the expenses of your investment property against your income through negative gearing.
Related: Negative gearing explained, in simple terms
2. Create your budget
Next step is to ask yourself: how much can you afford up front? Use this as a starting point to compare investment loans and get an idea of what price bracket you can work with. Now is also a good time to list what your investment goals are. Keep them close so that in tough times you can remind yourself of the future reward.
Related: Using your superannuation fund to buy investment property
3. Choose the right loan type
Once you’ve considered your financial situation and wrapped your head around the target market, you’re ready to choose an investment property loan that suits your needs.
Consider the following factors when choosing an investment property loan:
- Fixed or variable rate? Now is a good time to fix, with interest rates at all-time lows. Fixed rate loans provide more certainty and will allow you to budget more easily (monthly repayments are the same every month regardless market of interest fluctuations). While variable rate loans generally have lower rates (but not if interest rates go up) and you’ll potentially pay less fees, they also allow you to pay back more than the minimum which will lower your total interest costs in the long term.
Related: Fixed rate vs Variable rate? Best strategy for 2015
- Interest only loans will necessitate lower repayments and can be helpful for short-term investors who wish to negative gear. These won’t be so suitable if you are a long-term investor, as the accrued repayments you’re expected to pay on termination of the loan may outweigh the profit you make on the investment property.
Related: The home loan you never pay back - perks of an interest only home loan
- Construction loans are good for a long-term investor who wants to renovate, or for a short-term investor who wants to build a new house or remodel an old one, then put it back on the market. Construction loans are paid into your account in chunks, as and when you need money to fund each construction stage, rather than in a lump sum. This lowers the interest you'll pay on the loan because you're only borrowing funds as and when you need them.
- Redraw facilities can be very useful if you are ahead on repayments, particularly in a long-term investment or if renovations are in the pipeline. A redraw facility allows you to take back any overpayments made on your loan so you can use the excess funds you've been storing in your home loan to pay for something you might need.
- Offset accounts utilise the excess funds held in your account to 'offset' interest repayments, while the funds still remain available to you to use for everyday purchases – a great way to lower your interest repayments.
Related: Offset accounts strip $100,000's off Aussie's mortgage debts
- Mortgage portability will allow you to sell and then buy another property whilst retaining the same home loan. This option is very useful for short-term investors as it doesn't require refinancing each time you buy and sell property.
4. Compare property investment loans
Do your research and compare property investment loan interest rates so that you're getting the best property investment loan deal in the market. Yahoo7 Moneyhound compares 100's of property investment loans from Australian banks so you can make an informed choice.
Here's a sample of some top property investment loans available right now:
4.39% p.a. comp rate variable - Bankmecu goGreen Special
4.42% p.a. comp rate variable - IMB Investment Essentials with 100% offset
4.78% p.a. comp rate variable - BCU Variable Rate OMG Loan
4.82% p.a. comp rate 3yrs fixed - IMB Investment Loan
5.34% p.a. comp rate 3yrs fixed - Newcastle Permanent Premium Plus Package
Rates as at 20 March 2015
Compare these and more property investment loans at Yahoo7 Moneyhound today.
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