Investing in property continues to be a popular way of creating wealth. In addition to earning a good rental income, you can also make substantial capital returns.
However, the success of your property investment depends on not just choosing the right property but also on the choice of loan for investment property. In case you’re thinking about investing in real estate, you’ll need to carefully consider your investment loan options. Investment property loans are usually structured differently from home loans. You will want to choose a loan type that meets your investment strategy and cash flow.
Here are some pointers for choosing the ideal financing for investment property:
LEARN EVERYTHING THERE IS TO KNOW ABOUT INVESTING IN REAL ESTATE.
There is a lot of terminology in the property finance world that can confuse even the most seasoned buyers and sellers. It is in your best interest to equip yourself with knowledge and learn all the concepts related to property investment before making a move in the property market. There are plenty of articles on the net, or you could join webinars or listen to podcasts that can help you become a smarter investor.
CHOOSE THE RIGHT TYPE OF INVESTMENT PROPERTY LOAN
It is important to choose the right property loan for your financial situation. A fixed-rate loan or variable-rate loan will depend on your current circumstances, so carefully evaluate both options before choosing one.
LOAN OPTIONS AVAILABLE TO PROPERTY INVESTORS
You can choose from the following investment property loans:
- Principal and interest (PI) loans: A portion of the original purchase price along with the interest is paid right from the start, as the repayment consists of the interest rate and a portion of the principal. Eventually, the principal decreases and so does the interest payable on it, and a greater proportion of the repayment becomes applied to the principal, gradually freeing the borrower from debt.
- Interest-only loans: The interest component of your investment loan will not be reduced with interest-only loans, so you will only be able to pay off the interest component. You can keep your repayments to a minimum because you are not paying off any debt on the property. Interest-only loans can be fixed or variable.
GET A MORTGAGE BROKER FOR YOUR INVESTMENT PROPERTY LOAN
Financing investment properties is a complicated process, so get advice from our best mortgage advisor. An experienced broker knows all the different lenders available as well as loan options. With their wide-ranging experience of working with homeowners, everyone from experienced property investors and first-time buyers, they can get you the best loan tailored for your own specific situation.
HAVE A SOLID INVESTMENT STRATEGY
Your investment strategy will play a major role in determining the type of investment loan you select. A ‘buy and hold’ strategy, for example, allows you to pay back the loan over time even while collecting rent is suitable for long-term investments.
Using the equity in your current property which has increased in value or if the initial loan has been paid down , as funding for your investment property could be a good option if you already have a property. The advantage of this is that you won’t need to save a large down payment for your home loan borrowing. If you don’t want to take out a traditional investment home loan, you can take out a line of credit.
It’s important to align your investment strategy with your overall financial plan.
Managing your finances effectively requires that your repayments are arranged in a way that meets your investment strategy.
The interest-only repayment option may be ideal if you’re buying a property that you’re confident will increase in value quickly. It is true that interest-only loans are more expensive over the long run, but if your home doesn’t see strong capital growth, it won’t affect your finances.
Long-term investors who are risk averse but plan to collect rent on their investments will benefit financially from principal and interest loans.
FINDING THE BEST INTEREST RATES FOR YOUR LOAN
Choosing a fixed or variable interest rate is one of the most important decisions you will make when applying for an investment loan. A variable interest rate will change over time, as economic conditions fluctuate, while a fixed interest rate remains the same. You can also consider absorbing some of the risks of interest rate movements by splitting a portion of your loan between a variable interest rate and a fixed one.
CHECK THE INVESTMENT LOAN FEATURES
Certain investor loans offer a variety of features that can help you pick the one that’s best for you and maximise your investment return. Investing professionals often use offset accounts, which are savings accounts linked to their loans. By offsetting the savings account balance against the loan amount, you’re able to reduce interest charges. This type of account reduces compound interest, allowing you to save significant amounts of money.
Similarly, the ability to choose the repayment frequency is another important feature often overlooked by investors.
The best mortgage advisors of Breakthru Home Loans can step you through the whole investment loan process. You can contact our mortgage broker for the most competitive and best-fit investment loan deals for your requirements.