INVESTMENT PROPERTY MORTGAGE

If you are considering an investment property mortgage it is important to think about the type of property mortgage that will best suit your needs, what property to buy and where you are going to buy it.

WHAT TYPE OF LOAN WILL SUITE YOUR NEEDS

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.

Investment property mortgage header with a set of keys and the word mortgage underneath

MAKING YOUR INVESTMENT PROPERTY MORTGAGE WORK FOR YOU

You will need to consider whether you are going to apply for a fixed or variable interest loan. Both types of loans have advantages and disadvantages.  

A variable loan often comes with some advantages such as the ability to pay off more than is due,   100% offset arrangements and no cost redraw facility.

The advantages of a fixed interest loans is that you will know exactly what you repayments will be and should interest rates rise your loan repayments will remain the same until the end of the fixed interest period. 

WHAT TO BUY? THAT'S THE QUESTION

Think about the type of person that is going to rent your property such as families, singles, couples or retirees. You want to appeal to as many people as possible.  You need to look for appealing features such as an ensuite, double garage or a second living area. 

The location of your property is also very important with easy access to public transport, shopping centres, schools, medical services, sporting and recreational facilities. These add value to your investment. 

It is also important to keep your maintenance costs as low as possible. If you buy an older property you may have more ongoing repairs.  A home with a large garden or pool may cost more to maintain. If you buy a new home you will still normally have the benefits of the builder and product warranties. You will also have greater depreciation benefits.

Your will also need to consider extra costs such as body corporate fees.  A house on its own title will normally not have any corporate fees where a unit and apartment will.

Money tree growing out of a pile of gold coins.

WHERE TO BUY?

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.

GETTING GOOD ADVICE THAT'S MOST IMPORTANT

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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