Residential Investment Loans

The main distinction lies in the property’s purpose. Owner-occupier home loans are designed for individuals who will live in the property, while investment loans are intended for those who plan to rent it out to others. Lenders offer different loan products based on the property’s purpose.

You have the option to utilise the equity in your home to fund the down payment on a new property by using your existing property as collateral. This can be an effective way to take the first step into the property market, as leveraging equity is typically easier than saving for an entirely new deposit. Learn more about how you can use your equity to purchase another home.

Investing in property is a popular choice for many Australians, as it is easier to understand compared to other forms of investment such as shares, bonds, and ETFs. Home loan rates are currently at record lows, and you can utilise your home’s equity to finance your property investment.

Some benefits of purchasing an investment property include:

1. Potential tax benefits for property investors
2. Potential for capital growth
3. Relatively stable investment
4. Opportunity for passive income

When you buy an investment property, you may encounter the term “negative gearing”. This refers to borrowing money to invest.

If you borrow to make an investment, it can be either negatively geared – when interest repayments exceed net income, or positively geared – where net income exceeds repayments.

Negative gearing means that the cost of owning an investment property is higher than the rental income it generates. For example, if your rental property earns $25,000 in one year and the expenses of owning the property (loan repayments, body corporate fees, maintenance, etc.) are $30,000, you will have a loss of $5,000, which you can claim as a tax deduction.

One benefit of negative gearing is the ability to claim tax deductions and reduce your taxable income. Additionally, a negatively geared property investment may appreciate in value over time.

It’s important to note the risk involved in negative gearing because you are losing money. You’ll need to be aware of this to budget and prepare for the losses.

To calculate the profitability of an investment property, you can use either the weekly or monthly rent to determine the annual rental income. After that, subtract the annual costs. Divide this total by the property’s purchase cost and multiply by 100 to get a percentage. This will give you the rental yield, which helps you assess the return on investment.

If you’re considering investing in property, whether through buying or building, you’ll need to think about getting an investor home loan. There are two primary options: interest-only loans and principal and interest home loans. Each option has its own advantages and disadvantages. Click here to learn more.

An investment loan allows for interest-only repayments for up to 5 years from the settlement date.

You can avoid paying a cash deposit by using your home equity to purchase a second property. Accessing this equity is made easy through a mortgage refinance, which also enables you to potentially secure a better interest rate.

Normally, you will need to provide a 20% deposit (which is an 80% loan-to-value ratio (LVR)) for an investor home loan in order to avoid paying lenders mortgage insurance (LMI). However, it is possible to put down as little as a 10% deposit to purchase an investment property.

Remember to inform us when you change your home from an investment property to your primary residence. You may also need to notify other relevant parties, such as the Australian Taxation Office (ATO), as property expenses like interest payments may no longer be tax deductible.

Please inform us if your circumstances change and you decide to convert your owner-occupied home into a rental property. This is important to ensure that you have the appropriate financial product and so that we have your most up-to-date personal data for maintaining your loan compliance.