Home loans for investors or ordinary home buyers are, in essence, the same. However there are a few features that will be of greater interest and value to investors. Listed below are just a few of those features.
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This flexibility can be extremely useful, as you can time out when you have to make your loan repayments to coincide with when your tenants pay their rent. This will help you immensely with juggling your finances.
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Two in three property investors make interest-only repayments. With interest-only repayments, you spend a certain amount of time (usually 5-10 years) only paying back the interest on your home loan, rather than both the principal and the interest. This saves you money in the short-term.
In the time you spend making interest-only repayments, you can use the money you’ve saved on both tax and the loan repayments to pay back any other debt you may have. Initially, making lower repayments can also make it easier for you to manage your investment property.
However, once the interest-only term is over, you will then have to pay both the principal and the interest, and you’ll have less time to make all of your repayments. You won’t have really made any headway in regards to paying back your loan during the interest-only period, and in the end the total amount you pay back will be greater than if you had just paid back the principal and interest from the outset.
With any luck though, by the time it comes for you to pay off both the principal and the interest, the value of your property will have gone up and you can therefore start charging your tenants more for rent. The rent increase will help you to make the higher repayments.
Investors with particularly strong financial management skills can also choose to make extra repayments on the loan, while still making interest-only repayments. This means they will still save money in the short term, but will also have less to pay back when the interest-only period expires.
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Any interest earned on money accrued in an offset account (a separate transaction account linked to your home loan) is deposited into your home loan account. This reduces the amount of interest you’ll have to pay on your loan later. You’ll also be able to access these funds at any time, should you have sudden need for them, this account will help you get further ahead of your loan repayments.
For example, redrawing facilities allows you to deposit any extra income into your home loan account, which enables you to make progress on repaying your loan. You can also withdraw funds that exceed your regular repayment amount, and this money can be used to make repairs on your investment property.
Having the option to make extra repayments is important, particularly if you’re making interest-only repayments.
If you already own your own property, having a line of credit loan will allow you to access the equity in that property at any time to use it as a deposit on your next investment property, or to pay for any maintenance and renovations, or other such expenses.
In essence, it’s like having a credit card, where you are able to withdraw a certain amount and spend it on whatever you choose, but you’ll pay interest on what you owe afterwards.
You'll have to meet certain criteria before anyone will lend to you. Lendi has a list of a few things lenders look for in hopeful investors.
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