An investment home loan is tailored for those looking to purchase property as an investment rather than a primary residence. These loans are ideal for acquiring rental properties or properties that can increase in value, creating opportunities for income and financial gain.
Choosing the right loan is crucial for a successful property investment. At Home Loan Experts, we’re here to simplify the process, providing the guidance and insights you need to make confident, informed decisions on your investment journey.
Property Investment Loan Types
The right investment home loan can maximize your returns and can be crucial in managing your financial obligations effectively. Here are 5 common types of Property Investment Loans you can consider:
- Principal and interest loan
This is a common loan type where borrowers make repayments that cover both the principal amount and the interest for the specified period. It is often preferred by investors aiming to steadily reduce their debt while simultaneously building equity in the property over time.
- Interest only Loan
With this option, you pay only the interest for a specified period, typically 1 to 5 years, resulting in lower initial repayments. This approach may appeal to investors prioritizing capital growth and seeking to reduce short-term costs. It also allows for strategic decisions, such as selling the property before the interest-only term concludes or refinancing for improved terms. However, keep in mind that this choice extends the loan term, as no principal is repaid during the interest-only period.
- Fixed-rate loan
A fixed-rate loan locks in a specific interest rate for a defined period, usually 1 to 5 years, ensuring consistent repayments during that time. Once the fixed term concludes, the loan transitions to the lender’s variable revert rate. This stability can be advantageous for investors seeking predictable budgeting and safeguarding against potential interest rate increases.
- Line of credit loan
A line of credit loan lets you borrow up to a predetermined limit while paying interest only on the amount you use. Similar to a credit card but secured by your home equity, this loan offers flexibility for various investment purposes, such as funding property improvements or acquiring additional assets. It is ideal for investors seeking convenient access to funds for property-related expenses or investments without needing to secure multiple loans.
- Split loan
A split loan enables you to divide your loan into separate portions, each with its own interest rate and repayment terms. For instance, you could allocate part of your loan to a fixed interest rate and the other part to a variable rate. For example, on a $600,000 investment property loan, you might fix the rate on $300,000 while keeping the remaining $300,000 on a variable rate.
Qualifying for Property Investment Loan
The criteria for property investment loans can be quite complicated without proper guidance. Lenders deem investment loans as riskier compared to standard home loans. Therefore, you need to have a strong financial position to qualify.
- You should have 5%–10% in Genuine savings.
- If you are borrowing more than 90%, some lenders like to see equity in other properties (if this is not your first investment property).
- A good credit history.
- An above-average credit score.
- Stable employment.
How much can you borrow through Property Investment Loan?
You can borrow up to 95% of a property’s value for an investment property, though this typically involves paying Lenders Mortgage Insurance (LMI).
With a guarantor or by leveraging equity from another property, it may even be possible to borrow more than 100% of the property’s value.
If you are planning to start your property investment journey, please feel free to contact us.
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