What’s the difference between an investment loan and an ordinary home loan?
Most of the same types of home loans and loan features apply for investors as for owner occupiers. Some lenders may charge higher rates for investment properties if the associated risks are higher.
Can I use equity in my home as a deposit for an investment property?
Many an investor has started out by utilising the equity of their own home. Banks will usually accept equity in a home (or other property) as additional collateral against which they are prepared to lend. This means you could potentially borrow the full purchase price of the property, as well as all costs (stamp duty and other fees) without having to contribute any cash. The risk in using your home as collateral is that if you can’t fund the mortgage for the investment property, the investment property and your home are at risk. When we meet, we can go through the options you have available.
What is negative gearing?
This is when the cost of owning a property is higher than the income it produces. If the rent you get for an investment property is less than the interest repayments, strata fees, maintenance and other costs, your investment is negatively geared, or making a loss. This loss can be offset against your income, reducing your income tax bill.
How much money can I borrow?
We’re all unique when it comes to our finances and borrowing needs. Get an estimate on how much you could borrow with our fast and clever loan options tool. Or contact us and we can help with calculations based on your circumstances.
How do I choose the loan that’s right for me?
Our guides to loan types and features (links) will help you learn about the main options available. There are hundreds of different home loans available, we can recommend the right loan(s) for you.
How much do I need for a deposit?
Usually between 5% – 10% of the value of a property, which you pay when signing a Contract of Sale. Talk to us to discuss your best options for a deposit. You may be able to use the equity in your existing home or an investment property.
How much will regular repayments be?
Go to our Repayment Calculator for an estimate. Because there so many different loan products, some with lower introductory rates, contact us for all the deals currently available and the right loan set-up for you.
How often do I make home loan repayments — weekly, fortnightly or monthly?
Most lenders offer flexible repayment options to suit your pay cycle. Aim for weekly or fortnightly repayments, instead of monthly, as you will make more payments in a year, which will shave dollars and time off your loan.
What fees/costs should I budget for?
There are a number of fees involved when buying a property. To avoid any surprises, the list below sets out all of the usual costs:
- Stamp Duty — This is the big one. All other costs are relatively small by comparison. Stamp duty rates vary between state and territory governments and also depend on the value of the property you buy. You may also have to pay stamp duty on the mortgage itself. To find out your total Stamp Duty charge, visit our Stamp Duty Calculator.
- Legal/conveyancing fees — Generally around $1,000 – $1500, these fees cover all the legal rigour around your property purchase, including title searches.
- Building inspection — This should be carried out by a qualified expert, such as a structural engineer, before you purchase the property. Your Contract of Sale should be subject to the building inspection, so if there are any structural problems you have the option to withdraw from the purchase without any significant financial penalties. A building inspection and report can cost up to $1,000, depending on the size of the property. Your conveyancer will usually arrange this inspection, and you will usually pay for it as part of their total invoice at settlement (in addition to the conveyancing fees).
- Pest inspection — Also to be carried out before purchase to ensure the property is free of problems, such as white ants. Your Contract of Sale should be subject to the pest inspection, so if any unwanted crawlies are found you may have the option to withdraw from the purchase without any significant financial penalties. Allow up to $500 depending on the size of the property. Your real estate agent or conveyancer may arrange this inspection, and you will usually pay for it as part of their total invoice at settlement (in addition to the conveyancing fees).
- Lender costs — Most lenders charge establishment fees to help cover the costs of their own valuation as well as administration fees. We will let you know what your lender charges but allow about $600 to $800.
- Moving costs — Don’t forget to factor in the cost of a removalist if you plan on using one.
- Mortgage Insurance costs – If you borrow more than 80% of the purchase price of the property, you’ll also need to pay Lender Mortgage Insurance. You may also choose to take out Mortgage Protection Insurance. If you buy a strata title, regular strata fees are payable.
- Ongoing costs — You will need to include council and water rates along with regular loan repayments. It is important to also take out building insurance and contents insurance. Your lender will probably require a minimum sum insured for the building to cover the loan, but make sure you actually take out enough building insurance to cover what it would cost if you had to rebuild. Likewise, make sure you have enough contents cover should you need to replace everything if the worst happens.
What is landlord’s insurance?
Landlord’s insurance provides standard building and contents cover plus cover for theft or malicious damage to the property by tenants and covers loss of rent in certain circumstances. It also covers the owner’s liability (e.g. if a tradesperson is injured while working in the property). Landlord’s insurance is an affordable extra safeguard and strongly recommended for all investors.