Property investment loans are not too different from regular home loans. As with other loans you can choose between:
- Variable interest rate
Here the rate you pay fluctuates typically in line with changes to the official cash rate. This type of loan tends to have a range of flexible features like redraw however as investors can usually claim the loan interest as a tax deduction there may not be much incentive to pay off the loan sooner. So the features of a variable rate loan may not appeal to investors as much as they do to owner occupiers
- Fixed rate
A fixed rate is often very useful for investors as it provides certainty of repayments. This can be helpful because the rent payments on a property will be fixed during the lease term, and even if market interest rates rise the landlord may not be able to raise the rent until the lease expires. By locking into a fixed interest rate investors have more certainty about the repayments on their property and a more manageable cash flow
- Split rate
Like home owners, an investor can choose to split their loan between fixed and variable rate components
- Interest only loans
- Line of credit loans
With most standard home loans your repayments are made up of interest charges plus a small repayment of the loan balance. In this way you slowly chip away at the original amount borrowed over the term of the loan.
Where an interest only period is present the loan principle remains the same unless you choose to make additional payments. You only have to pay the original amount borrowed if you sell the investment property or if the interest only period expires.
This type of loan is useful for investors because during the interest only period of the loan:
- Your monthly repayments are less than they would be if you were to pay off principal as well
- You can get a tax deduction for the interest payments, but not for principal repayments
Line of credit
If you already own a property, a line of credit offers 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.
This type of loan is useful for investors because:
- A line of credit loan allows you to draw from a fixed amount at any time to pay for any additional expenses
- It’s kind of like a credit card with a big limit but the equity in your home acts as security for the loan
Your local Aussie Mortgage Broker can help
With so many loan options available it is important to have the loan in place that best suits your needs and investment strategy. That makes it worth speaking with your local Aussie Mortgage Broker who can look through hundreds of investment loans offered by a wide range of lenders to help you make the choice that is right for you.