The improving economic outlook and strong property market fundamentals mean that many people are looking at making their first foray into the investment property market, while experienced investors may also be looking to expand their portfolio.
Whether a first-timer or an experienced property investor, getting the financing of your investment right from the outset is fundamental to investing success.
The many options to consider when investigating your investment loan options include:
• Interest-Only versus Principal & Interest
Many investors prefer to pay interest-only on their investment loan, particularly if they still have a loan on their owneroccupied property. This means that if the investor is looking to reduce debt, they can focus on reducing the nondeductible debt on the family home.
• Offset Account versus Redraw
Both offset accounts and redraw facilities can be a good way for an investor to help reduce their investment loan debt. However, caution needs to be exercised when putting money in and then pulling out from the redraw facility as this can have implications from a taxation point of view. Using an offset account may be a better option.
• Fixed versus Variable
This is probably one of the biggest considerations for anyone with a home or investment loan at the moment in the face of rising interest rates. A fixed rate is often preferred by investors as it provides certainty when managing cash flow, but at present there is a considerable gap between fixed and variable rates (of about two per cent), which means variable rates can look quite attractive. Alternatively, fixing a portion of the loan and having the remainder variable can provide the best of both worlds.
• Basic Loan versus Professional Packages
Basic loans are 'no frills' products that generally offer a lower interest rate with no or low monthly fees attached. In comparison, professional packages are a way of packaging a loan with extra benefits such as discounted interest rates and lower fees but generally have a fee attached.
All the many options on offer mean the guidance of an experienced personal mortgage adviser is a necessity for any property investor.