Getting The Right Investment Property Loan

What should be the first steps for someone looking at getting into property investing?

Successful property investors understand that the property market is cyclical and take a long term view. A person looking to invest in property needs to have a financial plan and be comfortable that the property will allow them to meet their financial goal in the specific time frame they have allocated. 

Assuming that you are going to gear the investment property for tax reasons, the other important aspect is to ensure that you have the disposable income to put towards repaying the loan on a new property.  Unlike shares, a property also has additional costs to the repayments including maintenance, insurances, agent fees etc. so consumers need to be aware of the overall cost of property investing and ensure they can meet these without causing strain on their finances.

Are there differences between a home loan and an investment property loan?

The key differences between owner occupied loans and investment loans are in the features that are made available with each type of loan. A person wishing to live in their home may want their loan to include items like unlimited redraw, flexible repayments frequency or BPAY which make the loan transactional, while an investor may not find these features as relevant on their loan which in most cases is a ‘set and forget loan’.

Many lenders today will not differentiate their interest rate nor product features based on whether the loan is for an investor or home buyer that will occupy the property.

Which is a better investment property home loan? Fixed Rate and Variable Interest Rate loan?

It really depends on your individual circumstances and preference for stability. A fixed rate can give you comfort and knowledge that for the duration of the fixed period, your loan repayments will not change.

This makes it great for budgeting; each loan repayment during the fixed term will be exactly the same ensuring that you are never shocked. Ultimately a fixed rate loan insulates you from interest rates increases during the fixed period.

Conversely, the negative aspect of a fixed rate is that additional loan repayments are either not permitted or limited, break costs could apply if the loan is repaid before the expiry of the fixed period, and decreases to interest rates will not be applied to fixed rate loans.

Variable interest rates give you more flexibility with additional repayments, ability to terminate a loan (by way of refinance or sale of property), and be recipients of rate decreases.

The trade-off is the reduced repayment stability as interest rates and therefore repayments can increase during the course of the loan. Borrowers need to weigh the pros and cons of each offering and choose an interest rate type that best suits their individual circumstances.

What’s your final tip for potential property investors?

Do your research when it comes to picking a suitable loan, pick up the phone and get some from RESIMAC Home Loans to help you.
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