Category Archives: Finance and Mortgages

Getting Finance for Your Investment Property

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Unless you already have significant wealth, it is almost certain that you will need to take out a loan/mortgage in order to buy an investment property.  Most people agree that being in too much debt is not a good thing, however if you are borrowing to purchase an appreciating asset (such as a house) then the borrowing can help propel you to increased wealth.

Choosing a Lender for Your Investment Property

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When you are ready to start looking for your next investment property, you will most likely also be ready to start evaluating loan options for the purchase.

Whether you use a mortgage broker or not, it is still useful to research what possible loans will be available for your purpose.

It’s also wise to have your finance organised before making offers on a property.  If you already have a few properties with loans, you may be comfortable with sticking to your existing lender, especially if they already know your financial situation and can offer up the finance easily.

Using a Mortgage Broker

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Researching the type of loan you need to get to buy an investment property can be a time consuming task, especially when you don’t understand all the features and restrictions contained in the product.

Mortgage brokers solve this issue by becoming experts on the product offerings from all of the major lenders and then recommending the appropriate product for you.

Using a Home Equity Loan for Investment

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A home equity loan, or line-of-credit loan (LOC), is a facility set up so that you can draw down as much money as you need up to a certain limit that’s been agreed with your loan provider.  You need to make interest only payments on the balance of the equity loan, but you do not need to pay off the principal amount.

Use a Fixed or Variable Interest Rate on Your Investment Loan?

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With most mortgages, you can choose whether you want to use a variable interest rate or a fixed interest rate.  The variable interest rate is usually a bit cheaper up front and it will change each time the official cash rate changes.

A fixed interest rate on the other hand is a rate that your financial institution offers you that will not change over the agreed period of time.

For example, for the same investment loan, the bank may offer you 7% variable interest rate or alternatively, a fixed interest rate of 7.3% over 3 years.

Applying for an Investment Mortgage

Getting Finance for Investment

To be honest, the property investment mortgage market is tight right now. It’s not that there isn’t cash available for loans it is just that banks and other financial institutions are making homebuyers with AAA credit ratings jump through hoops to get financing for investment properties.

One of the keys to property investment right now is the ability to pay back the mortgage. That is why banks are requiring many people with excellent credit to prove they can make their monthly loan payments.

Use Interest Only or Pricinpal and Interest on Your Investment Loan?

Interest Only or Principal and Interest

For the smart investor, an interest-only home loan has several advantages over the more standard principal and interest home loan. Those advantages include:

  • Lower monthly payments
  • More available cash
  • The ability to use the extra cash for further investment

With a standard principal and interest property financed loan, you pay a certain amount of the loan as interest every month while also paying down some of the principal (also known as the balance).

With an interest-only investment mortgage, the payment you make every month only covers interest, freeing the part that would cover the principal for further investment…