Investment loans

Unlock the door to investment property

Get expert advice on taking out a property investment loan, whether for a new mortgage or to refinance your existing loan.

What is an investment loan?

If you’re looking to invest in property, you’ll likely need an investment home loan

 

More and more Australians are looking to invest in property, which means investment home loans are on the rise. An investment home loan is set up slightly differently from residential home loans – particularly around deposits, interest rates, and fees. It’s important to learn about these differences so you can shop around for the best deal for you.

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Investment home loans versus residential home loans

 

Taking out an investment home loan comes with some differences than if you were buying a property to live in.

Higher deposits

Many lenders look for a larger deposit if you are taking out an investment home loan. While you may find some banks are willing to lend with a 10% deposit, it’s far more common to see investment home loan products requiring a 20–30% deposit.

There are two main things to remember with your home loan deposit figure – over-leveraging and lenders mortgage insurance. We strongly advise against over-leveraging and borrowing to the maximum you can afford. It means that if anything happens in the future affecting your income, you could be unable to meet your mortgage repayments. The other aspect, lenders mortgage insurance, is required if you take out a loan with less than 20% deposit. It can be expensive, so it’s well worth doing your maths about what is going to see you better off in the long run.

Interest only repayments

A key feature of an investment home loan is that it comes with an interest-only option. This is where you only pay back the interest on your loan, rather than paying off all of the principle. When taking out an interest-only investment home loan, you’ll need to provide your lender with details of how you are going to repay the loan at the end of the term.

Many people offer to sell their investment property at the end of the loan term, or you may be able to take out another loan against the property to pay off your original mortgage, if you want to keep your home. This might sound like a bad way of purchasing an investment property, but it has a number of advantages. Firstly, your monthly payments will be lower – this means you’ll have the money in your pocket rather than it going into your home each month. Secondly, if you have done your property market research and bought in a high growth area, you can still benefit from rises in equity:

Ruby buys an investment property worth $350,000. She has a deposit of $50,000 and gets an investment home loan for the remaining balance with interest only for 5 years.

Her interest payments each month are covered by the rent Ruby receives from her tenants. She even takes some profit every month from the rent left over. After five years, Ruby’s interest-only term is over.

She still owes the bank $300,000. However, the property is in a high growth area and has risen in value. It’s now worth $500,000. This means Ruby can sell the property, pay back the bank, and still take $200,000 from her investment.

Higher interest rates

Many investment home loans come with a slightly higher interest rate than residential home loans. If you’re wondering how much more you might be expecting to pay, that depends entirely on the loan product you are looking at. It’s important that you shop around for the best deal, a Reventon broker will be able to help. A scan of products on offer shows that the interest rate on an investment home loans can be around 0.5% more expensive than on a residential home loan, which can have a significant effect on the amount you are paying back over the course of your loan term.

Fees and costs

If you are thinking about taking out an investment home loan, you should be aware of some extra fees and costs involved. This includes an establishment fee (which is common across many loan products), early exit or break fees, which you may be charged if you pay off or switch your loan before the fixed rate period ends, and a ongoing fee, which is an administration costs that can be charged monthly or annually. Before you take out any investment home loan, you should be aware of any accompanying fees, as they could cost thousands. We recommend speaking to an adviser if you’re unsure.

How Reventon can help

 

If you’re looking to take out an investment loan or upgrade your current loan, we can use out expert knowledge of the finance industry to ensure you make the right decision for your goals.

 

Our team of financial and property investment experts can:

  • Find an investment loan that suits you, with the best rates and terms
  • Help you work out what need and how much you can borrow
  • Take the hassle out of all the paperwork so you can rest easy

 

To find out more or to get started with your investment loan, book a meeting with an expert.

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