What is an Investment Loan?
An investment loan is a facility where you borrow money to purchase an asset with the idea that the asset will provide an income to you. You will use this income to assist you to repay the loan. The basic presumption is that the asset increases in value over time and that you may also pay the loan off resulting in full ownership of the asset.
For example: In the case of a rental property, you have your loan and you have your tenant paying rent. The rent paid goes towards your loan repayments and you may or may not have to contribute some further funds from your normal income. This will depend on the loan amount that you applied for and the rent received. Over time, you would hope that the value of the property will go up, and that the loan will come down or even be paid off totally.
What can an Investment loan be used for?
- Investment property purchase – Residential Security
- Investment property purchase – Commercial Security
- Investment portfolio funding
- Share portfolio funding
Depending on the facility that you apply for, an investment loan can be used for a few different purposes. Whether you are purchasing an investment property, planning an investment in shares, or looking at different investment types that could earn you a form of income in the future, an investment loan may be a viable option for your future.
NOTE: We highly recommend that you discuss your needs with your taxation professional and your mortgage broker so that you can be fully informed as to the benefits and downsides of any future investment purchase.
What do I need to know about an investment loan?
- Investment lending interest rates are very similar to home loan rates these days. Because of the competitiveness between the lenders and the deregulation of the banking industry a while back, the criteria surrounding investment loans has been relaxed quite a lot. This has created the ability from most investors to be able to secure an investment loan or a normal home loan rate.
- Most lenders will allow you to have an interest only facility. This helps if you have any personal debt that you are trying to pay down by allowing you to channel extra repayments to that personal debt. It is not make a lot of sense to try and pay down or pay off an investment property if you have any personal debt, such as an owner occupied home loan. If you were to pay extra money off your investment you could run the risk of minimising tax benefits. Again, please don’t take our word on any tax information and consult your accountant to know where you stand before applying for an investment loan.
- Most benefits that you would normally have under a properly structured home loan, will be available from most lenders. Depending on the institution and of course your individual circumstances, you might be surprised at what’s available to you with our investment lending options.
narrow down the best options available to you.
What information will Illawarra mortgage brokers be able to give me?
Once we have your details and know what loans you are able to apply for, we will compare the different products available. It is easier to show you a sample of our software below, so that you can understand the detail involved.
We have taken the lenders names off this example, just to be fair to the banks we used for the example – embarrassing to be lender number four in the comparison J. In this case, we have just used a basic 5 year home loan and compared four lenders for an owner occupier client.
You can easily see the different entry fees, interest rates, ongoing charges and mortgage payments at a glance, across the four lenders in this example. You can also see the savings between each lender at a glance. It really is easy to find that right loan when you can compare hundreds of loans in a matter of seconds.
Commercial Product Comparison Summary
For example purpose only – Bank names removed
|Lender||Lender 1||Lender 2||Lender 3||Lender 4|
|Product Name||Commercial Fixed Rate Loan||Commercial Base Rate||Commercial Small Business – Residential Security Fixed||Business Fixed Rate Loan|
|Interest Rate(s)||4.76% 4 yrs (fixed)4.47% 3 yrs (fixed)4.75% 1 yr (fixed)4.67% 2 yrs (fixed)4.82% 5 yrs (fixed)||8.43% 30 yrs (var)||5.40% 1 yr (fixed)5.50% 2 yrs (fixed)5.60% 3 yrs (fixed)5.85% 4 yrs (fixed)6.10% 5 yrs (fixed)
99.00% 10 yrs (var)
|5.06% 5 yrs (fixed)4.90% 1 yr (fixed)4.80% 2 yrs (fixed)4.65% 3 yrs (fixed)4.92% 4 yrs (fixed)
99.99% 15 yrs (var)
|Repayments||$3,892/month 4 yrs$3,835/month 3 yrs$3,876/month 1 yr$3,866/month 2 yrs$3,880/month 5 yrs||$3,820/month 30 yrs||$3,041/month 1 yr$3,070/month 2 yrs$3,097/month 3 yrs$3,158/month 4 yrs$3,209/month 5 yrs
$23,739/month 10 yrs
|$2,702/month 5 yrs$2,660/month 1 yr$2,634/month 2 yrs$2,598/month 3 yrs$2,655/month 4 yrs
$28,128/month 15 yrs
|Features||Extra Repay: Yes, you can make additional regular or lump sum repayments of less than $20,000 per year.Interest Only: Maximum term 5 years. Maximum LVR for interest only is 70% up to $2 million and 60% up to $3 million||Extra Repay: $500 per month extra repayments without penaltiesInterest Only||Interest Only: Interest only to a maximum of 5 Years or Principal and Interest repayment options|
|App Fee||Other: $500||Application: $600||Valuation: $200Application: $800|
|Discharge Fees||Early Repayment Fee : Applies to loans discharged within the first 5 years. 1 month interest calculated on original loan amount. Break Costs : May apply if: Fixed rate loan is discharged prior to the end of the fixed term. $20,000 or more in additional repayments in 1-year period.||$1,200: Applies if the loan is paid out within 1 – 4 years||$300: Break Administration Fee : In the event of a full termination of a Fixed Rate Loan Agreement, an administration fee of $300 will be charged. This is an addition to any Break Costs that may apply of you repay early all or any part of a Fixed Rate Loan.|
|Total Monthly Fees||$0||$3,600||$4,500||$0|
|Total Annual Fees||$0||$0||$0||$7,200|
|Total Setup Costs||$500||$600||$1,000||$0|
|Total Loan Cost||$197,430||$879,324||$2,919,989||$5,048,570|
Please remember that this is just an example and in a real life assessment we would be inputting a lot more data relating to your needs. The results would obviously vary with each individual scenario.
We recommend that you have an in-depth discussion with your mortgage broker to decide if this type of loan is suitable for you. You will find that they will give you some good options that you may not have thought about, allowing you to make a more informed decision before you apply this type of loan.
How can you apply?
These are your simple steps to apply for a loan.
- Contact us– to speak to a mortgage broker, please call (02) 4257 5626 (Southern area) or (02) 4283 5626 (northern area) or fill in our contact us online enquiry form.
- You will speak with a broker who will take into account your needs by discussing not only your requirements, but also any concerns you have, and offer you some possible strategies and ideas that you may not have thought about.
- Once we know what you require, we will draft and email you a proposal – this will usually consist of a few options that are easy to understand.
- Once you have had a chance to look at what options are available, you can contact your broker or the broker will call you, to discuss the proposal.
- You can then decide if you wish to proceed or you may just want to discuss more options.
Decided to go ahead? Great.
- Your broker will now take all of your information by completing a standard questionnaire with you and confirming details from your prior discussion – this is a 15 minute process for an average couple or you might prefer a face-to-face appointment.
- You will then be asked to complete a document checklist for your chosen lender and in the meantime, our office will prepare an application on behalf of the chosen lender.
- All that needs to be done now is for you to sign the application and give your checklist documents to your broker and your loan will be lodged
- We will then follow up on the progress of the loan and keep you informed as it progresses right up until the loan is completed.
It is that simple.
Put us to the test. Call your mortgage broker on 0242 575 626 to discuss your needs. You will be glad that you did.
(Southern office) 0242 575 626
Unit 3 / 10 Manning St KIAMA NSW 2533
(Northern office) 0242 835 626
253 Princes Highway CORRIMAL NSW 2518
Thank you for visiting our site and taking the time to learn what your mortgage broker does.
Posted 20 February 2015
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Mortgage finance brokers for residential and investment loans in Wollongong and the Illawarra region.