Article by Mozo
Whether you’re a first time investor wanting to get a foot in the property door or an experienced property pro after an addition to your portfolio, there’s one main thing you’ll probably be on the hunt for when it comes to your investment loan - a low interest rate.
Even a 25 basis point difference could slash the interest you’ll pay over the life of the loan significantly. For instance, an investor looking to borrow $600k over a 30 year period, would pay $31,850 less in interest if they went for a home loan with a rate of 4.25%, compared to a slightly higher rate of 4.5%.
See why a great rate is an absolute must?
Okay you might be thinking, “Mozo we’ve got the point, a lower rate loan could save me bucket loads of cash. Now how do I track down the best deal?”
Well there are several options and it all comes down to which method works best for you. Starting from the top...
If you have a bit of time up your sleeve you could use it to visit each home loan provider’s website and jot down the different rates, fees and features of the varying loans available to see which one comes out on top as the best. But when you consider there are over a hundred different home loans in the market, this option could be a considerably time consuming process.
Instead of doing the investment loan research yourself, you could hop online and use an online comparison website, which pulls all the different home loan offerings into the one place. So you can see what’s on offer from the big bank lenders in Australia to the smaller online providers and compare them side by side.
Mozo.com.au has several different comparison tools you can use, including a home loan search tool that allows you to compare our entire database or a Switch & Save Calculator if you’re an investor looking to refinance to a better deal.
Perhaps you are happy with your current provider and want to continue banking with them? That doesn’t mean you should settle for the interest rate advertised, as many lenders leave a bit of wiggle room for negotiating down the rate. For tips on how to haggle with your provider, read our how much could you haggle off your home loan? blog.
If haggling isn’t your thing, then there are services like mortgage brokers and home loan negotiators available. These professionals have relationships with a number of banks and can haggle you a competitive rate on your behalf. You can speak with Mozo’s home loan negotiators for free by filling out your details on our site.
So those are the varying ways to get the best investment loan deal, but wait, before you begin your home loan search, here are a few things to ask yourself:
When you choose an investment loan deal, you can usually choose between paying both the principal and the interest or opt for interest only repayments for an introductory period. There are three main reasons many investors go for the latter option:
- Relying on the property value increasing due to capital gains
- Only paying the interest results in lower repayments
- If the property is negatively geared, the interest may be claimed at tax time
If you do decide to opt for the interest only repayments option, keep in mind you will have to start paying down the loan amount eventually, so ensure when the interest only period ends, you can comfortably afford the higher repayments.
There are plenty of home loan features to look out for but two that are often the top of the list for investors are:
Think of this account as just like your everyday bank account - which you get your salary deposited into and use for everyday purchases with the linked debit card. The big drawcard of having an offset account is any money in the account is offset daily against your loan amount. So if you have a loan of $300,000 and a balance of $20,000 in the account, you’ll only pay interest on $280,000. The reason an offset account is more popular with investors than a redraw facility is because it’s easier to access your cash for future investment purposes without the slap of a fee. See why investors like it?
This option is for investors who already own property and have equity to draw on. To put it simply a line of credit facility is a revolving line of credit that you can draw upon as you please up to a set amount. The best part is you’re only charged interest on the amount you use. Say you’re renovating your investment property and are approved for up to $50,000 for a new bathroom and kitchen. If you pay $20,000 to your electrician and $15,000 to your plumber, then you’d only be charged interest on $35,000.
Of course, those are just two features used by investors, to get a full rundown of the different options when it comes to taking out a home loan read our ‘Home Loan Features in a Nutshell’ guide.
Many investment loans come with an upfront fee, for the administration costs associated with assessing you for the loan. You may also be charged a valuation fee, when the bank goes to assess the property you’re purchasing to ensure you have not overpaid for it. On top of these fees, an ongoing service fee could be charged on a monthly basis.
Keep in mind just like the interest rate, you can haggle with the lender on fees too or get our in-house negotiators to do it on your behalf.
Want to know more about investing in property like a pro? Then read our ‘Buying an Investment Property’ guide.Investing guides