THINKING OF PURCHASING AN INVESTMENT PROPERTY?
If you’re considering purchasing an investment property, the loan structure is an important factor to consider. Make sure you discuss your investment strategy with your accountant and Keywest finance adviser.
That way, you can relax knowing your loan structure is suitable and appropriate for your financial future.
HAVE YOU THOUGHT ABOUT:
Negative gearing versus positive gearing?
Using equity from your own property to minimise any cash deposit required to purchase the investment?
Purchasing in single names, joint names or in the name of a family trust?
Interest only versus principle and interest repayments?
The type of product - variable, fixed, split loan or packaged loan?
Some lenders consider tax benefits and rent received when determining your borrowing capacity, and some do not. Instead of spending hours trying to find answers, we can do the hard work for you! Choosing the right investment loan will manage your cash flow, minimise your costs and maximise your tax advantages.
HOME LOAN TYPES
Variable interest rates can fluctuate over time. If rates move up or down, your loan interest rate will adjust accordingly. Generally, interest rate movements are determined by the Reserve Bank, however, lenders have recently started independently raising their interest rates for varying economic reasons. Variable loans usually allow you to pay additional repayments, and there is less risk of penalties if the loan is paid out early.
Fixed interest rates are locked in for a set period of time, usually between one and five years. If interest rates move up or down, your interest rate is secured. Fixed rate loans can have a downside – you’re limited in making additional repayments (if any), and you may also have to cover potential break costs if the loan contract is paid out during the fixed rate term.
A split loan gives you the option to fix part of your home loan and leave the other part variable. Having part of the loan variable means you can still make extra repayments without being penalised on the variable portion, and gives you peace of mind on the fixed portion, knowing the rate won’t change. Many people tend to go with a split loan to manage some of the risks if interest rates rise.
Most professional packages come with an annual fee. In return, the lender will provide a significant discount on the interest rate, as well as other products, such as fee free offset accounts, reward credit cards and discounts on insurance products.
Generally, basic loans are variable loans, but without the frills. They may offer an introductory rate, and there are usually no application or ongoing fees. Basic loans don’t offer as much flexibility as professional packages, such as offset and free redraw.