Are you looking to grow wealth through property. Dreaming of a portfolio or maybe you already have one and you’re looking to add to this with your latest purchase. Or you simply wish to refinance to a lower interest rate or take advantage of Interest Only lending and your current bank refuses to extend your Interest Only term?
Investment loans as the name suggests, are home loans designed with you, the investor in mind.
How does an investment loan differ from a standard home loan? It many ways, it doesn’t. Structurally an investment loan is exactly the same an any other loan secured by property. The differences for an investment loan is in the detail. Investment loan differences are seen in the different bank policies, different interest rates and different Loan to Value Ratio’s (LVR’s).
Let’s go through each difference below:
Different policies. Given that you’re buying an investment, the banks will look at the security a little differently.
First policy that becomes a little less important is your exit strategy. Your exit strategy on an investment property is usually quite simple in that you will sell it! Given that it is not the property you’re living in the banks do not need to worry about where you will live in the event of selling.
The nature of an investment property will of course add to your income sources as you will now also be declaring rental income on top of any other income you’re currently receiving. Some banks will reduce the weekly rent you’re anticipating receiving by 20% while others 25%. This can make a big difference in how much a bank will lend you, particularly if you have multiple dwellings and the rent forms a large portion of your income.
Other banks will only allow rental income to contribute a maximum 50% of all your income. If you’ve many properties it may become difficult to earn 50% more than your total rental income so you would need to look at other lenders.
You can start to see that it’s much like a jigsaw. The more properties you have the more pieces of the jigsaw you have and the more banks policies we will have to look through to make sure that your jigsaw pieces match their policies.
With the recent enquiries into lending and pressure to make housing more affordable banks have had a lot of pressure from the powers that be including ASIC and APRHA to curtail the percentage of the lending book that is for investment purposes and also on Interest Only repayments.
What does this mean for you? It means two things. If you are borrowing for investment purposes you will almost certainly pay a higher interest rate than if you were buying for owner occupied purpose.
Secondly it means that if you also want to pay Interest Only on the lending associated with the investment property you will again almost certainly pay an even higher interest rate.
As your broker I will be able to provide you with a range of different options and you can use these figures to make the best decision for you and your current goals and needs. This may involve chatting to your accountant and /or financial planner. Some investors are less concerned with rate and more interested in maximising their borrowing capacity while others are looking for the longest Interest Only offering from the bank.
It really does come down to nutting out exactly what it is that you’re looking for and then narrowing it down to what banks can offer this to you.
For a detailed look at what options are available to you and to find the bank that can fit to your individual goals and objectives Click Here for your Complimentary Home Loan Assessment.