Investment loans are generally higher risk than owner-occupied home loans. Lenders want the clients to be in a strong financial position to qualify.
The risk factors are
- Low rent or unable to find rentals
- Expenses such as property management fee, council rates, etc
- Unexpected maintenance and repair costs
The basic lending criteria are:
- Genuine savings between 5% to 10 %
- Equity needed in an existing property if borrowing over 90%
- A good credit history.
- A projection of good rental income
- Stable employment.
Lenders for an investment loan
An investment loan is typically a higher risk to the bank but not for all lenders.
In case of non-payments, the bank has to sell your investment property to recover your debt. If tenants refusing to move out or have done major damage to the property, the bank won’t be able to recover their money. Therefore, to keep themselves on the safe side, banks insist to have more deposit against the loan and imply stricter lending guidelines!
It is also important to find a bank that encourages investors rather than having a conservative approach to investment loans.
We have few lenders on the panel which offer competitive interest rates and offer cash back offers for an investment loan to cover the costs
Call us for more information
Make your borrowing capacity higher!
Few simple steps from our experts to improve your borrowing power:
- Apply with a lender that specialises in investment lending,
- Reduce your credit card limits,
- Apply for loans jointly with your partner.
- Buy investment properties with a good rental return,
- Choose fixed rate products for initial few years.
Every lender has their own assessment criteria and guidelines. Some lenders can lend you more than others based on following situation.
- Rental income: Most banks use only 80% of your rental income in their assessment. Some lenders can use 100%.
- Other income: All banks assess your base salary in a similar method. The assessment of overtime, bonuses, commission, allowances, trust distributions, dividends and self-employed income are different from lender to lender.
- Assessment rate: Banks are not allowed to calculate your borrowing capacity using the actual rate that you are paying. They use either 7.3%(2019) or add up to 2% to the current rate. The reason is to make sure the client can afford if interest rate increase. However, if a client fixes its loan for 5 years, there is no such risk but banks don’t agree quite often.
- Existing debts: Some banks assess the repayments on your existing debts using principal and interest repayments. For interest only existing debts, the interest-only period does not remain forever, so P & I repayments are to be taken into account.
- Negative gearing: Lenders prefer investments which yield good rental returns as compared to negative gearing.
Lenders do offer low rates and cash back offers. Talk to us now
Acceptable investment property types
Not every type of property is acceptable to the banks. The property should meet the below criteria:
- Be a standard unit, house, townhouse or land, and construction.
- Be greater than 50m² living area.
- Be in good condition.
- Be located in a town with more than 10,000 population.
Investment loan types
- Professional packages
- Basic loans
- Lines of credit
- Fixed rates
- variable loans
Product features
Investment loans also have all of the same features as other loans:
- Interest only( 15 years maximum)
- Fixed rate
- Line of credit
- 100% offset
- Redraw
- Extra repayments
We can get your investment loan according to the features you require. Get in touch.
Who can get an investment loan?
This loan is for anyone who wants to
- Buy investment property
- Get benefit for tax purposes
If you have a strong financial position then you may be eligible to Borrowing 95% for an investment property. Clients with an existing portfolio may be eligible for less deposit investment loans too.
What is the maximum interest only term?
The maximum interest only term available in Australia is 15 years. However, the government has allowed banks to be more flexible as of in 2019 and let banks use their own terms.
The majority of lenders only allow a 5-year interest only period. The loan amount does not reduce at all so only a few lenders can provide more than 10 years interest only.
Many investors prefer to have to interest only investment loans. This helps to manage their monthly cash flow better and invest in more properties.
5 % deposit investment loans
some lenders have great products if you borrow 95% of the purchase price of your new investment property. You have to pass a good borrowing power requirements
The lenders can lend you Lenders Mortgage Insurance as well.
So, you can get a loan by just paying 5 % of the property amount, Remember, there are other costs involved too.
Almost all lenders will require you to prove that you have 5% in genuine savings. A 20% equity in another property.10
Do you need help getting approval for a 95% investment mortgage? Contact us now
10% deposit investment loans
Borrowing 90% of the value of your investment property is easier than borrowing a 95% LVR mortgage. The lenders have easier criteria and interest only options are available too.
Lenders mortgage insurance (LMI) is lower than that of 95% LVR and so are the repayments
Most of the big banks deal with 10 % deposit loans.
Can I buy an investment property without paying any deposit?
You can get a zero deposit investment loan through :
1. Investment guarantor loan
You may be eligible to borrow 100 % if your parents can guarantee your loan using their property as security. There will be no LMI cost. However, banks prefer to lend for owner-occupied rather than investment if parents security is involved.
2. Using another property as security
You can use your owner-occupied or any other property you own as security. The equity in that property needs to be at least the size of a deposit for your next investment purchase.
In a situation, you do not have a guarantor or equity, then the minimum deposit you have to pay is 5%.
What is negative gearing?
Negative gearing is when your interest and managing costs add up more than your investment income resulting in an investment into a loss.
So if you are not making any profit, then you may be eligible for a certain tax deduction. you may claim the net loss as a tax deduction against your other income.
Investors with a higher taxable income may receive more capital gains and tax benefits.
Clients with lower income thresholds can receive tax benefits through other deductions. It is advisable to discuss with your accountant before you plan to invest.
Is it a good time to buy an investment property?
It is always a good time to grow your portfolio. Investing has some advantages such as:
- Secure investment: The property market is secure and a safe investment. There are a very low number of frauds while buying a property.
- Consistent returns: The rental market in Australia has been growing over time. The rental yield is a steady return with low risk and tending to increase over the years. The bank repayments have been paid from the rent amount. After a certain time and you may have your account surplus.
- Substantial Growth: The property prices have a good history for a substantial increase in price on an average of 2%.In some cities and suburbs, properties have gained a significant rise in prices in the short term. You need good research before you invest.
- Tax reductions: Any expenditure on the property may be subject to attractive tax deductions. Property owners can commonly claim on things such as maintenance, rates, and insurance.
- Asset base: Having an asset base is of great advantage when you are seeking to apply for additional finance. If you own an investment property you are able to use the existing equity in it to secure other loans. This allows you to buy more property, thereby increasing your personal wealth. Higher borrowing capacity: When buying an investment property you may be entitled to borrow up to 90% or 95% LVR. Although you may have to pay lenders mortgage insurance (LMI), this can also be covered in the amount that you borrow.
Disadvantages of property investment
- Initial Costs: The buying costs such as stamp duty, conveyancing costs add up to a good amount. These costs vary from state to state.
- Ongoing Costs: There are ongoing costs involved all the time such as maintenance, repair, council rates and taxes(positive gearing)
- Bad liquidity: The property takes time to sell. If the market is good then property sells quick. In case its a downturn, then it may take a long time to sell and the sold price can be much lower than expected.
- Bad Tenancies: You don’t get good tenants all the time. The bad tenants refuse to pay the rent and its a long process to remove them from the house. However, there are few insurance policies to cover that period of rent but the procedure itself is time-consuming.
- Area Risk: Some areas just get a bad reputation. In a good economy, the property can be sold easily and on sideways or declining economy, these areas get even worse and not many people to buy houses there. It is a potential loss from day one.
We can get you connected with a reputed real estate expert for free advice.
Investment property vs Stock market vs business
One can not compare these investments. In fact, financial planners always advice not to put all the eggs in one basket. Property investment has few own benefits compared to stock or business such as :
- Low volatility: Unlike stocks or business, you would not lose your money in a single day.
- Visible: your property is visible to you unlike the stock market
- Tax benefits: you can claim the tax deduction, unlike the stock market where you have to pay CGT. Tax slabs for business are high too
- Portfolio: buying another property while securing the first help you increase your portfolio which do not happen in shares.
