How to finance your investment property

 

A PMP credit adviser will review your current situation and other home loan and credit commitments. They will also look at your long term goals and suggest the best solution to manage all your finances so you maximise your property investment return and minimise your repayments.

Some investment home loan tools PMP offers you to help with your property investment include:

• The repayments you can afford
• The life of the loan
• The monthly fees
• The type of loan
• Fixed or variable interest
• Principal and interest or interest only
• Does the loan have a redraw facility?
• Do you want an offset account?
• Are there any hidden costs?

Finding the right loan product for you is just as important as buying the right property.

Take your time, do your homework and consult PMP's expert credit advisers.

Why pay interest only?

In general, the recommendation is to pay as much off your owner occupier home loan as possible and only make minimal repayments on your investment property. This is suggested on the basis that the interest on your investment property loan is tax deductible. The best way to do this is to set up your loan as an interest only home loan.

This means the minimum monthly repayments will be for interest only on the amount outstanding. The interest rate can be fixed or variable. If you don’t have an owner occupier loan, then any extra payments should be deposited into loan offset account to avoid tax problems later when you want to re-use the money.

Interest only options (see below) Interest in advance option (see below) Split loan facilities (see below) Free unlimited redraw

Should I fix my rate?

As an investment, sometimes the certainty of cash flow is important. A fixed rate home loan will help bring certainty. However, there is a risk that you may lock yourself into rate that can sometimes end up being higher than the variable during the same term. With interest rates changing, there is no way to know what the short term gain or loss on interest rate is. However, if certainty of repayments is important, a fixed rate option is available.

What is interest in advance?

The tax office allows investors to pay the interest on their investment property, up to one year in advance. This means, that you would pay the interest that you would have paid on that property for the next financial year, before June 30 of the current financial year and hence include it as a tax deduction for the current financial year. No further repayments would be required on the investment loan for the next financial year, if it’s an interest only loan.

This is a useful tool to help you vary the taxable income for the current financial year based on your circumstances. For example, if you know that you will not be working the next financial year due to maternity leave, you can deduct the interest you would have paid, in the current financial year where you are earning a full income. This makes it more tax effective.

Interest in advance can be at both a variable or fixed rate and can be applied to an entire loan or a portion of it. Also be aware that the lump sum payment required to pay interest in advance needs to be available in the current financial year.

What are split home loans?

Everyone’s situation is different. However, a split loan means that you can make portions of it, interest only, fixed or variable, or pay some interest in advance. A split loan is basically a way to divide your current investment home loan into smaller loans with different features e.g. variable rate versus fixed rate.

Contact PMP today so that we can put you in touch with one of our local authorised credit representatives to find the most suitable home loan for your property investment needs.  

Please seek independent legal and financial advice from your solicitor, accountant or financial advisor in regards to your investment property and the most appropriate option for your circumstances.