With the recent clamp down on interest-only lending by the Australian Prudential Regulation Authority (APRA), investors have been left wondering if they should be changing their investment strategy.
Interest-only loans have been favoured by property investors, with good reason. As an investment stratgey, paying interest-only each month (instead on any capital) helps maximise an investor’s cash flow. The extra cash can then be used to fund other properties and expand an investor’s portfolio. It also offers tax benefits, as the interest can be off set against any rental income.
So just to re-cap, interest-only loans from banks and other institutions have been restricted to 30 per cent of new residential mortgage loans. APRA has also implemented stricter controls on interest-only loans with deposits smaller than 20 per cent. Regulators concerns stem from the risk that interest-only borrowers will take on too much debt, which can make them vulnerable to financial stress as interest rates rise. The latest tough new measures are also an attempt to cool the market in the inner suburbs or Sydney and Melbourne.
With these restrictions in place, it is important that you get the right advice as to how these changes will impact you and what changes you need to make to your current investment portfolio or any future investment you intend to make.
For example, if you have predominately interest-only loans - it might mean that you will need to rework your existing portfolio in order to release equity for future purchases. Some lenders are offering existing borrowers incentives to move across to principal and interest loans.
If your are considering investing in property in the future, then you will want to know the most suitable loan types for this type of purchase. Investment loans vary significantly in terms of complexity and structure and their choice will be dependent on a range of factors including:
- how many investment properties you hold,
- if you are looking at tax savings,
- how long you want to take to pay off the loan.
It is imperative that you provide details on your entire scenario when determining the best loan structure. Click here to review the two most common types of loans for investors.
As a mortgage broker, Collins Home Loans is constantly in touch with the most up-to-date regulatory changes and can ensure our clients have access to the best possible deals and loan structures. If you would like to discuss a current investment portfolio or look at some up-to-date investment loan products, then feel free to contact us to discuss your situation.