Hi all,
I'm new to all this and wanted to know is there something different about investment loans compared to your home loan that allows you to pay less off for your IP so you can cover the loan payments . Or is it all about finding an IP that covers the loan payments plus a bit extra. I own my home which is worth about $400k and want to buy an investment but dont have a very high income, so dont even know if the bank will let us borrow. Or will they let us borrow on our equity alone.
Any advice would be great.You can borrow without an income and some people even borrow a bit extra to cover any shortfall between the rent and the repayments.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
You need to consider how you would cover the loan if you had three months without a tenant or lost your job for a period of time.
Lenders will take a percentage of rental income into account when you borrow, this figure is different from each bank in working out if you can service the loan.
Another point is you may be thinking of is an interest only loan, which is an investment loan where you do not pay off the principal loan balance. (thus less payments each week)
Also investment loans are not protected from the UCCC regulation that covers residential loans. So if you get behind in the payments you will be treated a lot harsher than if you were a normal residential loan holder.If the property you are looking at is in an area where you believe you will see good capital growth you could always consider a cash flow mortgage.
This is a type of loan where the payable interest rate is less than the chargeable rate and the difference in interest is capitilised to the loan balance which will obviously increase.
Richard Taylor | Australia's leading private lender
Richard, why would you recommend this type of high-risk product to a first-time investor. Surely it would come down to the viability of more traditional IO vs PI loans before capitalisation of debt would be considered? The risk being tha if your property doesn't increase as fast as you would expect it would place you into the sub-prime category very quickly owing much more than the value of the property.
It does seem a little unusual to see Richard suggest one of these loans however they do have their place and provide no more risk than any traditional loan. What they do provide is a simple structure which is pre set by the lender rather than leaving equity management to the investor. For this reason I consider they fit new a investor profile especially with a suggestion of cash flow shortage.
From a risk perspective these loans operate on lower LVR lending and I would suggest as a result are less likely to arrive at negative equity than a standard 95% plus LMI loan
Craig
Craig
I have no problem =with such a product where the cirumstances dictate and the property is in a good capital growth area.
Similarly an Equity Finance Mortgage or Equity Share product also has a place for the right borrower. This unfortunately is a Full Doc product and currently not available for investors yet.
As long as you are not paying a high rate premium for the money management it is the same as capitalising the interest yourself through a Line of credit product.
Richard Taylor | Australia's leading private lender
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