Pink Finance
Investing in residential or commercial property has many potential financial and lifestyle benefits, such as:
- wealth creation through capital gains
- tax relief through gearing
- more financial freedom
- more peace of mind
- security in retirement
It is crucial that you have the correct structure for your investment portfolio. Whether you’re a new or experienced property investor, it is imperative to get advice from your accountant or your financial adviser.
Pink Finance will consider your short and long term plans to ensure your loan is structured correctly from the outset, allowing your investment strategy to be implemented straight away.
Q. How do I get started with buying my Investment Property?
This depends on whether you already own property.
If you already own property, you may not need a deposit. If you have made extra repayments on your mortgage or the value of your property has increased, you may have suitable equity in your property.
This equity may enable you to borrow against your existing property to fund a deposit for a new purchase, without using your own cash. Pink Finance will be able to let you know if you have enough equity to do this.
If you are not a property owner or if you do not have enough equity, don’t despair! You can use your savings as a deposit for your investment property. Pink Finance will check your situation to make sure you have enough of a deposit to cover all costs involved with your investment property.
Negative Gearing and Positive Gearing
One of the attractions of investing in property is the potential negative gearing benefits. In simple terms, this is where the costs (such as loan interest and fees) associated with having an investment property are greater than the rental income. The difference may be offset against your income tax.
Positive gearing indicates that your income is greater than your loan costs, however, there may still be some tax benefits. Always seek advice from your accountant or financial adviser on negative and positive gearing prior to purchasing an investment property.
Negative gearing – It’s important to understand that negative gearing is not the be all and end all, or the best thing for everyone. Loans are tailored to circumstances and goals, so you may find that the right solution for you could be negative, positive or neutral gearing. The team at Pink Finance together with our expert specialists can assess your needs and explain the best gearing structure options for you.
Q. What Investment Loan is the best one for me?
As there is no perfect investment strategy that would suit everyone, there is no “best” investment loan – if this was so, as we would all have this one! There are many different loans designed to cater for different needs – Pink Finance will help you choose.
There are many different home loans all designed to cater for different needs, including:
Basic Home Loan
A simple variable rate home loan which can usually be ‘principle and interest’ or ‘interest only’. Most do provide the option of making extra repayments and accessing them through redraw.A simple ‘set and forget’ format with no constant need to reassess your payments. Typically with low or no ongoing fees.
Great For:
First home buyers, where getting used to making mortgage repayments may be a priority.
People who want no added extras.
Fixed Rate Loan
A facility which has a fixed interest rate for a specified period – typically 1-5 years.
There may be limitations on making extra repayments.
If you break your fixed contract, you may need to pay a break cost fee.
You can also lock or secure the fixed rate by paying a rate lock fee.
Great For:
People who want the security of knowing what their repayments will be for a given time, even if interest rates rise.
People who like to budget.
People who like to have peace of mind, assurance, and stability.
Standard Variable Rate
A flexible loan which may vary according to the Reserve Bank cash rates. The standard variable rate is often used in conjunction with a professional package in order to get a more competitive interest rate. No penalties for extra repayments.
Great For:
People who want to take advantage of different features and benefits such as offset accounts, repayment holidays, and construction facilities. People who can pay a lump sum.
Line of Credit or Equity Loan
An ongoing interest only facility which has a maximum approved limit.
A line of credit often has a higher rate due to its unique terms and high flexibility. It is generally a part of a larger structure, such as a loan strategy next to a home loan, investment loan.
If you need to draw down the funds for any purpose you require. You will only pay interest on the balance you have used.
Great For:
Investors. People who need a high-level debt consolidation strategies.
Split Facility
This offers the flexibility of having more than one loan type under the same facility. Typically part fixed and part variable, A split loan may be most economical when linked with a package.
Great For:
Great for: Offering peace of mind by having some of your repayments remaining stable whilst you can make unlimited extra repayments on your variable loan portion.
Principal Only vs Interest Only home loan repayments
There are two types of repayment methods that you can set up for your loan: Principal and Interest and Interest Only repayments.
Principal and Interest repayments are when the bank has calculated the amount you borrow plus the interest over the total period of your loan term (normally 30 years) to pay that loan off in full by the end of the agreed term.
Interest Only indicates that the repayments you are required to make are based on the balance of your loan. Because you are only paying the interest, the repayments are usually lower. This may help with budgeting and cash flow but unless you make additional repayments, the loan balance will not reduce.
It needs to be known that an interest only loan may reduce your borrowing capacity due to the changes in the way banks assess this type of loan structure. An interest only loan can be a great structure but should not be used as a tool purely for affordability reasons.
Interest Only repayments
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