Understanding investment home loan rates

Buying an investment property is a great way to climb the property ladder and start building your wealth.

However, while taking the leap into the property market can feel exhilarating, figuring out things like investment home loan rates are, well, somewhat less exciting. With so many lenders out there, even if you’ve done your homework and know all the right questions to ask, it can be difficult to know which lender is best suited to your unique needs. It can certainly feel like finding a needle in a haystack.

Buying an investment property is an excellent way to build your wealth, but it’s also a big financial commitment. When it comes to investment properties choosing the right property is, of course, critical but many people underestimate the importance of choosing the right investment home loan rates for their needs. There are a huge variety of lenders that offer investment property loans, but not all lenders will be a fit for your specific investment goals and risk profile.

Buying an investment property is an excellent way to build your wealth, but it’s also a big financial commitment. When it comes to investment properties choosing the right property is, of course, critical but many people underestimate the importance of choosing the right investment home loan rates for their needs. There are a huge variety of lenders that offer investment property loans, but not all lenders will be a fit for your specific investment goals and risk profile.

When it comes to investing in property and choosing your investment home loan rates you want to ensure you’re gearing your property portfolio with the right loans to maximise your borrowing capacity while extending your interest only periods and reducing the size of your deposits. This is especially critical if you plan to buy more investment properties and fast-track your investment goals!

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How are investment home loan rates structured?

Investment home loan rates are structured in a number of different ways to suit different people for different reasons, these include:

Variable interest rates, fixed interest rates, splits rates, interest only loans and line of credit loans. Our investment experts will closely with you to determine which structure best suits you.

  1. Variable Interest Rate
    This type of investment home loan rate fluctuates, typically in accordance, with the official cash rate. This type of loan is categorised by its range of flexible features, however, as investors can usually claim the loan interest as a tax deduction there really isn’t much incentive to pay the loan off sooner. This type of investment home loan rate generally appeals to owner occupiers more than investors.
  2. Fixed Interest Rate
    A fixed rate loan is often a very desirable option, as far as investment home loan rates go, because it provides certainty of repayments. This is especially helpful if the investment property is being rented out to tenants because the rent payments on a property are fixed during the lease term, so even if market interest rates go up, the landlord is not permitted to raise the rent during the lease period. However, by locking in a fixed interest rate investors will be able to maintain more certainty around the repayments on their property, which is helpful in forecasting and managing cash flow.
  3. Split Rate
    No brownie points for guessing this one! As the name indicates, a split interest rate means that investors can split their loan between variable and fixed interest rates.
  4. Interest Only Loans
    When you’re dealing with most standard home loans, your monthly repayments generally consist of a small repayment of the loan balance plus interest charges. When you repay a loan this way, you will only slowly chip away at the original amount over the term of the loan. However, when an interest only period is present the loan principle itself remains the same, and you only have to pay the original amount borrowed if you sell the investment property or if the interest only period expires. As an investor, this type of loan is useful because your monthly repayments end up working out to be less than if you were paying off the loan principle and you can claim a tax deduction for the interest payments, whereas this tax deduction doesn’t exist when you’re paying off the loan principal.
  5. Line of Credit Loans
    Think of this kind of loan like a credit card with a massive limit that uses the equity in your current home as collateral against your loan. A line of credit loan is best suited to those that already own property, as this type of investment home loan allows you to tap into the equity you have already accumulated and use it as a deposit for your investment property. As an investor, this type of loan is useful because it allows you to draw from a fixed amount whenever you need to pay for any unforeseen expenses.
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