Buying an investment property is a popular long term investment option for many Australians. However, there are some things that need careful consideration and having a thorough understanding of investment loans will help ensure you get a loan that is right for you. This useful guide is designed to give you a better idea of the various investment home loan options.
Principal and interest or interest only?
Principal and interest repayments are calculated to pay down some of the principal balance of the loan as well as the interest accrued. By choosing principal and interest repayments you will be building equity in the property and could pay off your loan quicker.
With interest only repayments, you will only pay off the interest you are being charged each month for a pre-defined period of time. This means your repayments are likely to be lower, making it easier to maintain a positive cash flow during that period. However it is important to note the perks of an interest only loan does come with some pitfalls. The overall balance of your loan will remain relatively unchanged over the period as you are not paying off the principal amount, meaning you are not getting any closer to owning the property outright.
It’s best to always speak to a lending expert when choosing the best type of investment home loan for you.
Fixed or variable interest rates?
When you’ve done your research on loan repayment options and chosen which one is right for you, you’ll need to decide whether a fixed rate loan or a variable one is best suited to your needs.
A fixed rate loan gives you the same interest rate during a set period. The agreed period could be from 1 to 10 years, and during this time you will have the security of knowing exactly what your repayments are each month regardless of interest rate changes happening in the market. Once the fixed rate period comes to an end, your loan will typically default to a variable rate.
A variable rate loan means that your minimum monthly repayments can fluctuate depending on the interest rates at the time. This can mean it’s harder to plan financially, as your minimum monthly repayment may increase based on reaction to decisions made by the Reserve Bank of Australia or other market impacts.
Whichever investment loan option you choose, it’s always important to get professional guidance and to carefully consider your circumstances. We have various investment home loans to suit every individual. Enquire today to have a friendly chat with one of our home loan specialists and get one step closer to buying an investment property.