Australian Residential Property Planners know that getting the right investment property finance package for your investment is just as important as which property you buy. Finding the right property investment finance to best suit your individual circumstances can prove as difficult as finding the right real estate to invest in. Property finance from a bank or credit union is an integral part of the property investing process. Is it worth paying extra for a loan with more features? If you need to borrow a lot of money where should you go? More information on this at Your Mortgage & Money Smart
The main problem is there are potentially more home loans to choose from than there are investment properties.
With so much choice its hard to know where to begin. However, one thing is for sure – you shouldn’t go with the first lender to approve your application. Gone are the days when borrowers visited the bank manager cap in hand. Today most lenders are keen to visit you. Borrowers today are in the driver’s seat, so take advantage of it!
One way to manage the selection of an investment loan is to use a mortgage broker. Mortgage brokers can do a good job of wading through a wide selection of mortgages to find one that meets your needs. However, if you are happy to leave the selection process to someone else, you need to have a clear understanding of the selection criteria they’re using to both eliminate and include lenders. A recent report by the Australian Consumer’s Association was critical of many mortgage brokers, highlighting the fact that some exclude up to 70% of the best value mortgages from their lender lists. ARPP refers clients to a selected panel of mortgage brokers with a proven track record. Whether you choose to use a broker or whether you prefer to do-it-yourself, you should spend time defining your needs and preferences.
Because there are so many factors differentiating the many loans out there, its a really good idea to consider and list your needs before you set out.
- How much do you need to borrow ?
- What will the loan represent as a proportion of the property value (i.e. the LVR)?
- Are you borrowing for investment or personal purposes?
- How long do you intend borrowing for?
- Are joint incomes required to meet repayments?
- Which State/Territory is the property located?
You may also have special needs –
buying the property through a unit trust or company structure, or you could be buying land with a view to building a house.
Investors should always think about flexibility with their investment finance. Would you like to vary the size of the loan without lots of paperwork? Would you like to vary your repayments? or Do you simply want a no frills loan with the best available rate? Ultimately, the loan structure you choose will determine the flexibility you have.
So, lets look at loan structures. Loans can be : –
- Standard Amortising;
- Line of Credit (Equity)
- Amortising Equity; or
- Standard Interest Only
One way of describing the structure of the loan is the repayment schedule. The repayment schedule is defined by the term of the loan (say 25 years) and the types of payments you make – interest only, or principal plus interest. A traditional principal and interest loan for the purpose of buying the property (and nothing but the property), is known as a Standard Amortising Loan.
More and more borrowers are taking advantage of the equity in their property by using it as a security to borrow for other purposes. Loans that allow you to use a mortgage for purposes other than investing in property fall into the “Line of Credit” category. These loans dont have a strict repayment schedule therefore, work best for borrowers who have plenty of self discipline.
Amortising Equity Loans let you borrow against the equity you have built up against your home. However, each time you change the loan amount, your repayment schedule is reset. You pay principal and interest repayments on the basis of your specified terms. These loans are good for borrowers who have built up equity in their home but like (or need) the repayment discipline that an amortising loan provides.
If you dont need to build up equity in a property, you may choose to use an interest only loan. Investors typically use interest only loans to maximise tax deductibility over the life of the loan.
The problem with assessing a range of opportunities is simply dealing with the large number of variables. This is where understanding your own needs and working with a specialist finance broker comes in handy. Although each of us has unique financial needs, its a simple fact that some products on the market have more features than others. If you find a loan that has a mountain of features, chances are you won’t be the only person that suits. Similarly, some loans are cheaper than others. If we combine these two ideals and hunt down all the loans with the most features that are amongst the cheapest, we find the best ‘value for money’ products.
The advantage of using a finance broker from our panel of affiliated investment property specialists is that you dont have to do all the leg work yourself.
Contact Australian Residential Property Planners for a free information pack, or to arrange an obligation free consultation.