Unlock Wealth: Investment Loans & Smart Strategies

Investing in property is a powerful way to build wealth, but navigating investment loans can be tricky. Whether you're a first-time investor or expanding your portfolio, understanding your financing options is key to making smart decisions.

Using Equity to Your Advantage

If you already own a property, you may be able to leverage your existing equity to fund your next investment. Lenders often allow you to borrow against the value of your current property, meaning you won’t need a large cash deposit. This strategy can accelerate your investment journey without dipping into your savings.

Rent-Vesting: Own Where You Can Afford, Live Where You Want

Rent-vesting is a popular strategy where you rent the home you want to live in while investing in a more affordable property elsewhere. This allows you to enter the property market sooner, take advantage of high-growth areas, and maximise potential returns—without compromising on lifestyle.

Investment Loan Interest Rates: Higher but Manageable

Investment loans typically come with higher interest rates compared to owner-occupied loans. Lenders see investment properties as higher risk due to factors like potential rental vacancies and additional property management costs. As a result, investment loan interest rates are often around 0.26% higher than those for owner-occupied loans.

When considering an investment loan, it's essential to account for these higher interest rates in your financial planning. Additionally, lenders may require a larger deposit, often around 20%, to mitigate their risk. Despite these higher costs, investment loans can offer tax benefits, as interest expenses on these loans are generally tax-deductible.

Choosing the Right Interest Rate

Investment loans come with different interest rate options:

• Fixed rates offer certainty in repayments but can be less flexible.
• Variable rates can fluctuate, often providing more features like offset accounts.
• Interest-only loans reduce initial repayments but require a solid long-term plan, as the principal remains unchanged.

Other Key Factors to Consider

• Loan-to-Value Ratio (LVR): Most lenders require at least a 20% deposit to avoid Lender’s Mortgage Insurance (LMI).
• Tax Benefits: Interest on investment loans is often tax-deductible, helping to reduce your taxable income.
• Cash Flow vs. Capital Growth: Some properties generate strong rental yields, while others appreciate in value. Align your loan strategy with your investment goals.

Whether you're looking to use equity, embrace rent-vesting, or find the best loan structure, choosing the right investment loan is crucial. Speak with our mortgage broker to tailor a strategy that fits your long-term plans.