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Investment Loans

Choosing the right investment loan can prove as difficult as finding the right investment property. With so much choice, it’s hard to know where to begin. Is there any difference between an investment loan from a bank and say, an investment loan from a non-bank source or a credit union? Is it worth paying extra for an investment loan with more features? If you need to borrow a lot of money where should you go? Can you get a discount on the rate if it is a large loan?

The property boom of the last few years has seen a dramatic rise in property values. More and more borrowers are taking advantage of the equity in their property by using it as a security to borrow for other purposes.
Because there are so many factors differentiating the many investment loans out there, it’s a really good idea to consider and list your needs before you set out.

Points to consider include:

	How much do you need to borrow?
	What will the investment loan represent as a proportion of the property value?
	How long do you intend borrowing for?
	Are joint incomes required to meet repayments?
	Do you have special needs – e.g. are you purchasing an investment through a unit trust or company structure or are you buying land with a view to building?
	How likely is it that you would like to vary your repayments or the size of the investment loan down the track?
	Should it be interest only or principal and interest or a combination?
	Or do you simply want a no frills investment loan with the best available interest rate?

Ultimately, the loan structure you choose will determine how much flexibility you have.
Investment loans will generally have one of the following four structures:

1. Standard Amortising Only (Variable) Loan
A traditional principal and interest loan for the purpose of buying the property (and nothing but the property).

2. Standard Interest Only Loan
If you don’t need to build up equity in a property, you may choose to use an interest only loan. Investors typically use interest only loans to maximise tax deductibility over the life of the loan.

3. Line of Credit (Equity)
Loans that allow you to use a mortgage for a purpose other than investing in property. These loans don’t have a strict repayment schedule therefore, work best for borrowers who have plenty of self-discipline.

4. Amortising Equity (Variable loan)
This loan lets you borrow against the equity you have built up against your home. However, each time you change the loan amount, your repayment schedule is reset. You pay principal and interest repayments on the basis of your specified terms. These loans are good for borrowers who have built up equity in their home but like (or need) the repayment discipline that an amortising loan provides.

The problem with assessing which investment loan is right for you is simply dealing with the large number of variables. This is where understanding your own needs and working with a specialist finance broker comes in handy.

For a free independent loan appraisal