Choosing an investment loan
Property investment loans are not too different from any other type of home loan. Like other loans you can choose fixed, variable or split interest rates and flexible features like redraws. But there are two types of loans that tend to be more attractive to investors.
- Interest only loans
- Line of credit loans
With most standard home loans your repayments combine the interest you owe on the principal amount you borrowed, plus a little bit of the that principal as well. In this way you slowly chip away at that original amount over the term of the loan.
With an interest only loan the principal remains the same. You only have to pay the original amount you borrowed when you finally sell the investment property (and hopefully make some capital gain).
This type of loan is useful for investors because:
- Your monthly repayments are less than they would be if you were pay off principal as well.
- You can get tax deductions on the interest payments, but none on principal repayments.
- It makes it easier to calculate the true returns from a property.
Line of credit
If you already own a property, a line of credit is a way for you to tap into any equity you have built up in that property and, use it as a deposit for your investment property.
A line of credit loan allows you to draw from a fixed amount at any time to pay for whatever you want. It’s kind of like a credit card with a big limit but the equity in your home acts as security for the loan.
Find the best loan for you
Like when choosing any other home loan, you need to compare rates, features, fees and charges.
Take a look at the Buyers’ Guide for tips on choosing the right type with the right features for you. Then talk to a good broker to get some advice.
Continue to information about tax and your investment property.