Financing your Investment Property

Most lenders offer the same range of investment finance products. There is no doubt that there are differences between the same product offered by different lenders, but choosing the wrong product will probably have a greater financial impact than the wrong lender. When borrowers make mistakes, nine times out of ten, it is due to choosing the wrong loan product rather than the wrong lender.

Borrowers need to first decide which product is best for them and then decide which lender offers the best deal for that particular product, thereby comparing apples with apples.

Mortgage brokers are a vital element of the investment property mortgage lending business. They are not tied to one financial institution and it is in their best interests to secure the right deal for you. A good broker has all the relevant market information at hand in order to provide you with an expert opinion on the various loan products available. They should also have the capacity to compare different loans relevant to your particular situation. This is vitally important because it allows you to compare the features, fees, repayment schedules and interest rates of many different loan products at the same time, saving you countless hours of research.

Where to begin?

National Investment Planning affiliated mortgage brokers specialise in property investment finance. They offer a service to borrowers which involves matching a borrower's needs with a loan from a panel of lenders represented by the broker. As a part of our step by step process, the broker will conduct an interview with the borrower to get all the relevant information, both in terms of the financial details of the proposed loan, as well as the lifestyle and risk preferences of the borrower. They will then use a combination of their own product knowledge and dedicated software to find the loan that is the best match for the borrower.

What do you want?

Because there are so many factors differentiating the many loans out there, its a really good idea to consider and list your needs before you set out.

Questions that every lender will ask you are: -

How much do you need to borrow ?

What will the loan represent as a proportion of the property value (i.e. the LVR)?

Are you borrowing for investment or personal purposes?

How long do you intend borrowing for?

Are joint incomes required to meet repayments?

Which State/Territory is the property located?

You may also have special needs -
buying the property through a unit trust or company structure, or you could be buying land with a view to building a house.

Loan Functionality

Investors should always think about flexibility with their investment finance. Would you like to vary the size of the loan without lots of paperwork? Would you like to vary your repayments? or Do you simply want a no frills loan with the best available rate? Ultimately, the loan structure you choose will determine the flexibility you have.

So, lets look at loan structures. Loans can be : -

Standard Amortising;

Line of Credit (Equity)

Amortising Equity; or

Standard Interest Only

One way of describing the structure of the loan is the repayment schedule. The repayment schedule is defined by the term of the loan (say 25 years) and the types of payments you make - interest only, or principal plus interest. A traditional principal and interest loan for the purpose of buying the property (and nothing but the property), is known as a Standard Amortising Loan.

More and more borrowers are taking advantage of the equity in their property by using it as a security to borrow for other purposes. Loans that allow you to use a mortgage for purposes other than investing in property fall into the "Line of Credit" category. These loans dont have a strict repayment schedule therefore, work best for borrowers who have plenty of self discipline.

Amortising Equity Loans let you borrow against the equity you have built up against your home. However, each time you change the loan amount, your repayment schedule is reset. You pay principal and interest repayments on the basis of your specified terms. These loans are good for borrowers who have built up equity in their home but like (or need) the repayment discipline that an amortising loan provides.

If you dont need to build up equity in a property, you may choose to use an interest only loan. Investors typically use interest only loans to maximise tax deductibility over the life of the loan.

The final decision

The problem with assessing a range of opportunities is simply dealing with the large number of variables. This is where understanding your own needs and working with a specialist finance broker comes in handy. Although each of us has unique financial needs, its a simple fact that some products on the market have more features than others. If you find a loan that has a mountain of features, chances are you won't be the only person that suits. Similarly, some loans are cheaper than others. If we combine these two ideals and hunt down all the loans with the most features that are amongst the cheapest, we find the best 'value for money' products.

The advantage of using a finance broker from our panel of affiliated investment property specialists is that you dont have to do all the leg work yourself.

How do I get started?

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