Investment Loans

Investment Loans

According to the ABS in 2007, Australians borrowed around $82 billion in investment loans and $263 billion dollars in home loans. There are now many excellent borrowing options available to investors and you will find a good outline of them and how they work here. Always seek advice from your accountant on investment and taxation rules for your particular situation. While you may read or hear different information, talking to your accountant and or financial planner will give you the appropriate analysis of your specific financial, investment and taxation situation. This is particularly important when you are considering investment relating to your superannuation.

There are a range of investment loans and loan features available - ranging from simple Home Loans to more complex loans that are allow you to manage tax, gearing and repayments. Go to the Residential Investment Loans page for more information on Lines of Credit and the various interest rate options available.

Investment versus Personal Use

Investment loan decisions are often influenced by whether the borrower has any owner-occupied debt. Owner-occupied debt is usually paid off first to maximise the effectiveness of gearing, while the tax effective debt (investment debt) usually has the minimum repayments possible, often interest only repayments. If there isn't any owner-occupied debt, then personal circumstance and choice dictates interest only, principal and interest or a combination of the two. Talking to your accountant or financial planner is particularly important when you are planning on making decisions about funding for investment purposes versus owner occupier or personal use.

No LMI to 85%

X Inc works with two lenders who will do up to 85% borrowing without requiring the payment of the traditional lender's mortgage insurance that is normally payable for borrowings over 80%. This offer can literally save you thousands of dollars that can be used to top-up your loan repayments.

"I refer my clients to Mary Ramsay because I need to work with someone who my clients can trust completely. She is simply the best mortgage broker. Most of the business I send to Mary is well in excess of $1,000,000 and nothing is straightforward." Andrew Hungerford, Avenue Capital Management, Bowral, NSW

Margin Loans

Margin loans are designed to fund investments, where the underlying security is a portfolio of lender approved shares or lender approved managed funds. Be aware that these loans are subject to call should the value of your portfolio fall outside the prescribed ratio.

The combinations for the various margin loan options are the same as for their residential secured counterparts, but three main types of margin loans are available from most lenders:

1. Variable Rate (similar in operation to a Line of Credit facility).
2. Fixed Rate - Interest Only - Monthly in Arrears
3. Fixed Rate - Interest Only - Annually in Advance

Margin lending is most commonly used:

• Where you are not comfortable in having your residential property securing such an investment
• Where you simply don't have enough equity in your property but still have the cash flow to service additional investment debt.

Commercial Bills

Although commercial bills are usually associated with business lending (as the name suggests), it is also available for larger scale investment borrowings ($1,000,000+). The underlying interest rate is driven by the Bank Bill Swap Rate (BBSW), to which the lender adds a margin called the facility fee. This margin will vary significantly (from 1.00% to 3.00% pa) and is dependant on a combination of factors such as the financial strength of the borrower, the underlying security, competitive pressures etc.

The combinations with this product are almost endless. The bills can be variable rate or fixed rate (1 to 10 years). They can be 'rolled' at 30, 60, 90, 180 days, 6 monthly and even annually. Interest is paid at each rollover. One unique feature of commercial bills is the ability to purchase a ceiling rate. What this means is that you are on a variable rate, but your rate cannot go over a predetermined 'ceiling'. It is almost like getting an insurance policy on your interest rate. This can be particularly useful in a volatile interest climate, but be aware that it is typically offset with a higher 'floor' rate. The underlying security for commercial bills is open to negotiation.

"I have had three houses before and this was the smoothest and easiest loan transaction ever. I would and have already recommended Andrew Walker to a few friends. I deal with people all day as a manager and found Andrews approach as totally professional and helpful in every aspect." Peter Smith, Perth, WA

Other Loan Types - Personal Loans and Fully Drawn Advances

Other loan types available include personal loans which can be used for investment purposes and are a great way for people to start a share portfolio when they don't wish to use their residential property as security, don't have residential security available or who are not comfortable with margin lending and the associated risk of a margin call.

Many lenders also offer facilities known as Fully Drawn Advances on an interest only basis either unsecured or secured. Although these options are not well known (or advertised for that matter) they are available and could be the right solution in some situations.

Property Investment - Golden Rules

Rental returns aren't the only opportunity to maximise property investments. There are a few golden rules to getting the most out of the borrowing side of your property investments.

1. Make sure you review your property investment loans regularly to ensure you are on the best deal available. Over the course of a long-term property investment plan, the type of loans available and your situation may change dramatically.

2. Be disciplined about the kinds of add ons you pay for with your investment loan. Only get features and benefits you will really use. They all cost you money.

3. Do the math and change loans if there is a long term benefit. Even though the costs can add up to anywhere from hundreds to thousands of dollars, changing to a more sensible structure or lower interest rate now may actually save you quite a bit more over a long investment period. With the help of a good mortgage broker, you won’t even need to do most of the work.

The extra money you save or earn because of the change can help you to expand your property portfolio, undertake redevelopment projects, take advantage of the tax benefits of paying your interest in advance, finance renovations on your home, or even top up your superannuation.

Make sure you talk to a qualified Investment Mortgage broker

If you would like to talk confidentially with a broker who understands how investment borrowing works, contact us or call at any time on 13 XINC (13 9462) or direct on +61 2 90188417 and we will return your call within 2 business hours.