If you are building a new home then the type of property investment mortgage you should consider is a construction loan. This type of loan will allow you to make draw downs as needed and as the progress payments on the construction falls due. A line of credit can also be used to finance the construction of a new home as draw downs can also be made as required.
A typical new home construction requires progress payment to be made in five stages,
1. The Base
2. The Frame,
3. Lock up
4. Fix out
5. Final payment upon completion.
The builder will send you an invoice when each stage is complete and payment is usually due within 7 days of the receipt of the invoice. The bank will only charge you interest on the amount that you have drawn down on the loan to date.
You will need to decide whether you will apply for an interest only loan or interest plus principle. If you have an interest only loan then the principle will need to be repaid in full at the end of the interest only period usually in 10 years. You will be able to pay each month either in advance or arrears, at the bringing or the end of the month. There are tax advantages of paying in advance.
There are risks involved with an interest only investment property mortgage. For example if your property reduces in value and the mortgage expires you will still need to repay the mount of principle that you originally borrowed.
Consider buying in a market that you are familiar with. You are more likely to know by experience where the best spots to buy are, how the market has grown over time and what level of growth you can expect over time.
It is also important to look for an area that is going to grow in the future. Look for local panning initiatives perhaps where new shopping centres and new train stations or highway upgrades are being built. If big business and local government are investing in the area then it is worth considering following their lead.
How your investment property mortgage is structure will depend on your personal circumstances. Do you want a construction loan or put in place a redraw facility? Would you like an interest only investment property mortgage or interest and principle repayments. Will a fixed or variable interest loan work for your circumstances? We can refer you to a dependent mortgage consultant who will tailor a solution to meet your needs. Contact Us for more information.
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