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Australia's property market is bursting with opportunities. Smart financing is the secret to making the most out of your investment. Here are some tips to help you get started and maximise your returns.
Table Of Contents
Know Your Financial Position
Before jumping in, take a good look at your finances. What's coming in, what's going out, and your debts. This will help you figure out how much you can borrow without breaking a sweat. Also, check if you have a good credit score. This is important to obtain better loan deals. We provide a tailored approach to each borrower’s financial circumstances, ensuring an appropriate level of borrowing to acquire the correct investment property suited to their needs.
Pick the Right Loan Type
Property investors have a variety of loan options. Here are some of the major ones:-
Repayment type:
Interest-Only Loans: Paying only the interest for the first few years. Your monthly repayments are lower. But remember, you’ll eventually need to tackle the principal. This is a popular option to maximise tax deductions whilst directing principal towards non-deductible debt (like your principal place of residence) or towards your offset account, helping you further save on interest charges. Usually these products carry higher rates but from a cash flow point of view are well favoured amongst investors.
Principal and interest loans: paying down the principal and interest, these loans are designed to reduce the balance from day 1. This would be more suited for those that are risk-averse or are comfortable to make higher repayments knowing that with each repayment the loan balance is decreasing. The rates offered with principal and interest loans are often cheaper than interest only but from a cash flow perspective dearer in repayments.
Fixed-Rate Loans: These loans keep your repayments steady, shielding you from any nasty rate hikes. It’s peace of mind in loan form. The downside? If rates drop, you might be paying more than necessary. Great for investors to lock in for certainty with their cash flow.
Variable-Rate Loans: These go with the flow of the market. Rates can go up or down, which means your payments can vary. Many come with handy features like offset accounts and redraw facilities, adding a bit of flexibility to your finances.
Leverage Your Equity
Already owning a property? You can use the borrowable equity in it – that's the gap between its market value and what you owe – to get better terms on your investment loan. It’s a productive way to utilise equity to help further build wealth. Remember that this is a separate loan setup against your property and the purpose will be investment related, therefore the interest payable is tax-deductible.
Structure Your Loan Wisely
How you set up your loan can have big tax implications. For instance, an interest-only loan might boost your tax-deductible interest expenses. Chat with an investment savvy mortgage broker to get your structure just right.
Shop for the right rates
Don't settle for the first loan offer that comes your way. Compare rates from different lenders to find the best deal. Online tools are ok, but an investment savvy mortgage broker with personal experience with investing can offer the correct guidance to help you on your investment journey.
Plan for Interest Rate Changes
Interest rates are like the tide – they rise and fall. When planning your investment, consider what happens if rates go up. Building a buffer in your budget can save you from future stress. We recommend setting up adequate buffers via your offset account so that you never have to worry about unforeseen costs.
Manage Your Loan Efficiently
Once you’ve secured your loan, it’s all about management. Any additional savings throughout the year like tax returns and bonuses can be added to the offset account, helping to reduce the interest you owe. Every 6 months, we contact the lender to reprice your loans to ensure you are on a good deal and within the market.
Stay Informed
The property market is a living, breathing thing. Keep an eye on trends, interest rate movements, and policy changes. Regularly review your loan terms to make sure you're still getting the best out of your investment loan.
By following these tips, you’ll be on your way to making the most of your investment property. Working with an experienced mortgage broker like myself will open up avenues to your investment property journey. Here's to smart investing and even smarter returns!
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