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 home loans. When considering funding options for an investment property, a loan type you choose is crucial; it should suit your investing requirements perfectly. Before you choose your loan, the smartest thing to do is know which type of features and repayment options align with your needs and which are available for investment property loans; this will in turn help you make most out of your investment.
Line of Credit
When you decide to borrow money, a line of credit typically gives you the much needed flexibility and does so by allowing the draw down on the loan, in order to assess additional funds that you might need in the future. 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 and you can borrow money up to this set sum, with additional interest that you 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 second, new loan all over again.
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 thus lower and can be claimed as tax deductibles. Nevertheless, once you’ve reached the end of the interest-only period, the repayments automatically increase.
The moment you start paying principal and interest, the only thing that can be claimed as a tax deductible is your investment home loan. Some cases show that you have an option of paying interest per annum in advance, in order to help with the reduction of your taxable income.
Interest-only home loans enable the investor to secure a property while paying minimum repayments. So, 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; property’s value might not increase sufficiently and in this case, you’ll end up paying a large debt, instead of making a profit.
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, which means that the amount of interest charged to you is slightly reduced. A significant advantage with an offset account is that you can still access the money 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.