Investing in property

Owning an investment property can be the cornerstone to building long-term wealth. Not only does real estate increase in value, but you can also build equity in your property at the same time. You can even receive a number of key tax breaks along the way, which can lead to significant wealth creation opportunities.

Choose the best loan for your investment

Whether you are a first time investor or a seasoned campaigner, you can use the equity in your existing home as a deposit or in some cases, pay ‘interest only’ to improve your tax position with a Variable Investment Loan.

  • Line of Credit Loans enable you to access the equity in your existing home and use it as a deposit for your new investment property.
  • Variable Loans with an interest-only payment option keep your monthly repayments down, enable tax deductions on the interest rate, and make its easier to calculate property returns.
  • Interest-only Loans can mean that your monthly repayments are less than they would be if you were paying off the principal amount. 

Use your equity with a Line of Credit Loan

Use the equity in your home to increase your buying power with a Line of Credit Loan, without having to save for a deposit. This works like a credit card, but with a lower interest rate. Because you can access the equity in your home, it’s more secure. You can even deposit your income directly into your loan, which operates like an overdraft – once it is paid back, you can re-use it again and again. There’s also an ‘interest only’ option, which allows for greater tax savings.

What are the tax savings with a variable investment loan?

The interest you pay on your investment loan may be tax-deductible and, depending on your situation, you may be able to claim a range of other deductions. For example, when the rental income is less than the outgoings, the property is classified as negatively geared. Under the right circumstances, the Tax Office will allow the ‘loss’ on the investment to be declared as a tax deduction. Negative gearing can be complex, and as with any investment, you certainly need to do your homework. Be sure to seek professional advice from an accountant or financial planner.

Your investment property loan can be tailored to your needs with competitive interest rates and favourable lending criteria.

Interest-only Loans

The benefit of interest-only loans for investors is the reduced payments allow for lower loan repayments so the rental income will cover off the monthly mortgage payment.

However, there has been a shift away from interest-only loans in recent times, with the Australian Prudential Regulation Authority (APRA) tightening the standards for interest-only loans since 2014. APRA has done this in an attempt to cool the hot property market in Sydney and Melbourne. For banks and other institutions, interest-only loans have been restricted to 30 per cent of new residential mortgage loans. From July 2017, APRA has implemented stricter controls on interest-only loans with deposits smaller than 20 per cent. 

How will changes to Interest-Only Loans affect you?

If you fall into any of the below categories, you may well be affected by some of the changes.

  • First time investor who has planned on getting into the market with a high loan to value ratio using mortgage insurance.
  • Seeking an investment loan without a 20 percent deposit.
  • Off plan property investor who has paid a 10 per cent deposit, with plans to finance the remaining 90 per cent of purchase price on settlement.
  • Existing investor with a variable loan.
  • Investor with multiple properties with plans to release equity to purchase another property.
  • Investor with high levels of SMSF lending.
  • Investor trying to maximise borrowings or with plans to refinance investment loan.

Tips for Investors

  • Not all lenders have the same restrictions on investment lending. Non-bank lenders have become a popular alternative for investor activity.
  • Some people don’t realise their loan type is ‘investment’ and are now paying a higher rate of interest for no reason. It commonly happens when you initially purchase your home as an investment property, then down the track move into it but never change your loan type from ‘investment’ to ‘home loan’.
  • Some lenders will modify their lending guidelines or offer you a better deal if you are in a ‘preferred’ occupation such as a doctor, dentist, pharmacist, legal professional or teacher.
  • The less you borrow, the more lenders will be inclined to approve your investment loan application. Aim to boost your deposit through savings or by reviewing your current assets.

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