How to Choose the Right Investment Home Loan

Property Investment And The Right Home Loan

When you begin the search for an investment property, it is more likely that you’ll be more attentive when it comes to the capital growth and rental yields, rather than acknowledging if it’s a trouble-free commute to work or does it have a large pool or garage. When real estate is in the game, property investment is quite different from buying a home. 

Similar to the fact, loans for property investment tend to be differently structured than a home loan. When considering funding options for an investment property, the loan type you choose is crucial; it should suit your investing requirements perfectly. Before you choose your loan, you should find out which type of features and repayment options align with your needs. As well as which are available for investment property loans; this will in turn help you make the most out of your investment. 

Line of Credit

Line of Credit

When you decide to borrow money, a line of credit typically gives you much-needed flexibility. It does so by allowing the drawdown on the loan, to assess additional funds for future needs. This can be useful if you want to, for example, make repairs or renovations. 

In its essence, a line of credit works comparably to a credit card. There is a set limit of credit you can borrow money up to, with additional interest to pay on the outstanding balance. Certain banks may give you very favorable options; if there’s enough equity or credit built up, you can actually tap into the existing equity. This will allow you to make additional investments without the need to apply for a new loan all over again. 

Interest-only Home Loan

When it comes to an interest-only loan, the loan payments you deposit cover the interest for a fixed period of time and they do not reduce the principal amount that you owe. Since you’re not paying off any of the property debt, the repayments are lower and can be claimed as tax deductibles. Nevertheless, once you’ve reached the end of the interest-only period, the repayments automatically increase. 

When you start paying principal and interest, the only thing that can be claimed as tax-deductible is your investment home loan. Some cases show you have an option of paying interest per annum in advance, to help with the reduction of your taxable income. 

Interest-only home loans enable the investor to secure a property while paying minimum repayments. If we assume that the property’s value will grow exponentially in the future, the investor can eventually sell and later use the money to pay off the principal, while also making a profit. Nonetheless, the risk is always present with interest-only loans, the property’s value might not increase sufficiently. In this case, you’ll end up paying a large debt, instead of making a profit. 

home loan paperwork

Offset Accounts

To put it simply, an offset account represents an account that’s tied to your home loan. The account balance is offset against the home loan balance, meaning that the amount of interest charged is slightly reduced. A significant advantage of an offset account is that you can still access the money at any time if needed. Offset facilities are not available with all home loans, but if they are, they’re typically in the form of a linked savings account or transaction account.

Conclusion

No matter the home loan option you choose, you must always remember that it is very different in the sense of interest, procedure, and payment.