Residential Investment Loans
Whilst borrowing options for investors are now virtually the same as loan options for owner-occupiers, there are some additional loan types that offer advantages for investors in particular.
Borrowing options available to investors are now very similar to loans for owner-occupier purchases, with most investors able to use most standard fixed and variable rate home loans to purchase an investment property.
The same loans terms as for an owner-occupier purchase will generally apply, including access to features such as extra repayments and redraw. There are also some loan types and repayment options that may be particularly beneficial to investors.
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Line of credit loan
Many investors choose to use a Line of credit loan to purchase investment property, due to the ability to continually draw funds back up the limit, thus allowing you to purchase additional properties without the need to apply for additional loans.
A line of credit offers the flexibility of drawing down money in a lump sum or in smaller amounts. You can continue to draw money down at any stage of the loan as long as the total withdrawn plus interest charged do not exceed your credit limit.
There are generally no formal repayments required, however if you have drawn the loan down to its limit you will need to make interest only repayments regularly to ensure your balance remains under the maximum credit amount you have been allowed.
A line of credit will usually operate over a standard loan term, with the line of credit either expiring after a set period and reverting to principal and interest repayments, or revolving where you credit limit is reviewed and adjusted at set periods in the loan cycle. Read more about Lines of credit.
Interest only fixed and variable rate home loans
Interest only loans suit investors who are focused on achieving capital growth in the short-medium term, and often go hand-in-hand with negative gearing. These types of loans will usually have lower repayments than a principal and interest loan.
A fixed rate interest only home loan usually has a term of 1 to 5 years, after which you will need to renegotiate or pay out the loan.
A variable rate interest only loan works in a similar manner but with the interest required varying with market interest rate fluctuations. It’s important to note that a variable rate interest only loan may not have the same breadth of features that are available as one where principal and interest repayments are required.
Interest in advance
Paying interest in advance is the option to pay the interest that will accumulate on your loan over the next year before it is actually charged. This allows you to claim the costs against your tax a year earlier than you would normally be able to. Usually available on fixed rate loans, lenders may offer a discount on the interest rate if you do pay in advance. The loan term may range from one-to-five years, depending on your lender.
Paying interest in advance is only an option for those who are able to afford to pay the loan interest in a lump sum. Talk to a Loan Market mortgage broker about your residential investment loan options today.