Investment Portfolio and loans

Home Loan Product Information

An investment property may seem like a great way to offset your taxes, grow your property portfolio or gain wealth through equity for a self-funded retirement. Prior to purchasing an investment property there are many factors you must consider, the loan specialists at NEXT can advise you how to best set up your investment portfolio.

Where do I start?

A key component of managing an investment portfolio is the way you structure your loan. No matter how simple or complex your portfolio is, whether you are seeking maximum tax deductions, asset protection, or ensuring you avoid cross-securing your properties, it is imperative to have your immediate needs and future goals extensively analysed to ensure that you are best positioned to realise your financial goals.

FAQ

HOW LONG DOES IT TAKE TO APPLY FOR A HOME LOAN?

There are many variables to consider when applying for a loan, factors include the complexity of the loan structure, the prospective lenders’ turnaround times, whether you’re seeking a full approval or approval in principle & of course how strong your application is.

Once your home loan expert has analysed your finances, drafted the structure & discussed lenders, then they will be able to discuss the process and develop a timeline for your application, from the initial stages to approval & right through until settlement.

CAN I BORROW THE STAMP DUTY & PURCHASE COSTS AS WELL?

This all depends on the assets offered as security to the prospective lender, circumstances where you can borrow the stamp duty costs include;

If this is your first property purchase, you can utilise a parental pledge/security guarantee and even though this is an investment, generally you will be able to borrow the stamp duty plus purchase costs, as the bank will have enough equity in your purchase property combined with the pledge property.

If this is a second purchase, provided you have sufficient equity in your existing property to cover the stamp duty and other purchase costs you will be eligible to borrow enough to cover the required costs. This will require you to have a Loan to Value Ratio (LVR) below 80%, should you exceed 80% LVR you will be required to take out costly LMI (Lenders Mortgage Insurance).

SHOULD BE INVESTMENT LOAN BE ON PRINCIPLE & INTEREST, OR INTEREST ONLY REPAYMENTS?

Questions like these are why it is imperative to speak to a finance expert to analyse the best strategy in deciding the best loan facility to suit your personal needs. In most cases, if you have existing Owner Occupier (OOC) debt, this should be your primary focus for your cashflow, as your OOC loans are not tax-deductible. So, in this scenario, it can be beneficial to have your investment loans as interest only, giving you an advantage of having multiple properties appreciating in value, and to rapidly grow your portfolio for retirement.

SHOULD MY INVESTMENT LOAN BE FIXED OR VARIABLE?

Whilst this is a straightforward question, it doesn’t have a straightforward answer. Depending on your circumstances there can be reasons to select a fixed rate or variable interest loan. Currently, interest rates are at an all-time low, and there is speculation that another rate reduction could eventuate in the coming months, if that is the case then now may not be the best time to fix your rate. This is why it is vital to consult with a NEXT home loan specialist to assist you in making the best financial decision.

Fixing your rate can provide some comfort, knowing your interest rate & repayment amounts are set, this assists with budgeting for any shortfalls in rental income in order to service your loans. The risk is that you may be locked into the loan for a fixed term, and as most lenders have restrictions on fixed loans they may charge you exorbitant fees for breaking the fixed term even in the case of refinancing, selling or increasing loan amount.

A variable rate loan gives you much more flexibility for refinancing, restructuring or making any changes in the future (fixing rate, equity release, change loan term etc.) with variation/exit fees being much less when comparing to fixed rate loan break costs.

When deciding on either a variable or fixed interest rate your home loan expert will seek to evaluate what financial goals are over the coming years to establish what products may be suitable for you.

WHY USE A BROKER OVER A BANK?

There are many good reasons to use a broker to act on your behalf, our home loan experts have a deep knowledge on lender policy, products, niche markets & lenders appetite for certain applications. Our brokers can then give you tailored recommendations that are not only comparable rates, fees and repayments, but have also taken into consideration possible problems, red flags or policy exception requirements and many other variables that go into recommending a suitable and competitive home loan product.

By going directly to a bank for finance, you may spend a several days going back and forth providing information, or filling out paperwork, only to be told after you’ve lodged an application that the bank can’t approve your loan. Should you apply at more than one bank, they will leave enquiries on your credit file, which will alert other lenders from the beginning. The first question they will ask is ‘why didn’t the applicant proceed with lender X’.

This is quite common in the current market, as lender ‘X’ isn’t going to advise you to go to lender ‘Y’ as your application fits their policy much better, whereas a broker understands the policies of lenders and can guide you accordingly without any notations hitting your credit file.

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Everyone needs a health check from time to time and with an ever-changing landscape so does your financial health. Our team at NEXT make this an easy process. We can evaluate your current situation and assess how your financial situation is positioned against up to the minute offerings and rates on an obligation-free basis.