What is a property investment home loan?
If you’re looking to buy an investment property, the chances are you will also be looking for a loan to support your property purchase.
If you plan on renting your property to tenants and receiving rental income, you’ll need to take out an investment home loan. There are some key features and difference between investment home loans and residential mortgages to keep in mind.
Investment home loans generally come with higher interest rates than residential home loans. The exact rate you can expect depends on your personal financial circumstances and credit background – in some cases, you can find an investment home loan that is as cheap as a residential mortgage, but you need the right support in searching for the market for the best deal. Consider speaking to a finance professional about your circumstances and budget.
Fees and costs related to investment home loans are also generally higher. This includes the application fee (also known as an establishment fee, an up-front fee or a start-up fee), which is a one-off payment when you take out your investment home loan. Plus, you’ll need to consider other fees such as service fees, early termination fees and stamp duty.
Loan to value ratio
Investment home loans often require a higher loan to value ratio than residential home loans. This means that investors will need to contribute a larger deposit – you should aim to have at least a 20% deposit. The lower your loan to value ratio, the more affordable your rates will be, so it pays to do your sums to make sure you’re not paying more in the long run.
Interest only home loans
An interest only investment loan means you only pay the interest portion of your loan. Interest only loans mean that you have lower costs each month, but you’re not paying off any of the loan’s principal – therefore relying on the property increasing in value over time to pay off the mortgage. Interest only home loans also have benefits when it comes to tax minimisation and negative gearing.
Who can apply for a property investment home loan?
Just like any other loan, eligibility for an investment home loan relies on your credit history, your current finances and you capacity to pay the money back. Mortgage lenders look at how risky it would be to lend to you – so if you have plenty of savings and a good income, you should have no problems. If you have less savings or a lower-than-average pay cheque, it may be a little more complicated, but there could still be a road to investment. Either way, speaking to a professional about your circumstances can help you find the best deal.
Can you use a residential home loan to buy an investment property?
If you’re buying a property with the intention to rent it out to tenants and make an income, you need to take out an investment home loan. If you use a residential home loan to get lower rates and rent out your property, you are likely in breach of your mortgage terms, which could land you in hot water with your lender. If you live in your own home and have done for a while, but you now want to rent it out, it should be relatively simple to be transferred onto a new product for a fee or a slightly higher interest rate.
Get advice for your investment home loan
The property market is always changing, and this doesn’t just mean property prices or areas of high growth (although this is important when it comes to your property investment home loan, particularly if you’re taking out an interest only loan). The loan market is forever shifting with new regulations, interest rates and deals. This means that whether you’re a seasoned property investor or just starting out, it pays to get advice before you buy.
Reventon is a team of 50 property and financial experts with over 125 years of collective experience, so we have the industry knowledge, expertise, and resources to scour the market looking for the best investment loan deal for you. We also offer free property advice sessions for investors where you receive personalised investment plan to help give you the tools you need to make the smartest investment decision.