With all the different lenders, loan products and options available, setting up an investment loan for the first time can be confusing. But it’s important that investors structure their loan correctly, right from the start. And while many people typically approach the bank they’ve been with for years, this may not be the best choice.
Instead, engaging an independent licensed mortgage broker or property investment adviser – before beginning your property investment journey – will ensure you maximise the return on your investment and avoid any of the common mistakes investors make.
A good broker will provide free advice, explain the various aspects of borrowing and help you secure the best deal for a loan product that suits your specific needs and financial circumstances.
Although loans are not a one-size-fits-all proposition, there are two main kinds of loans. Principal and Interest, or “P&I” loan, are encouraged by lenders, as the repayments cover both the interest and a proportion of the actual amount borrowed. But only the interest component of the repayments are tax deductible – and that’s important for investors to know.
The second type of loan is the Interest Only, or “IO” loan. Its repayments are much lower, as you’re only paying off the interest. The principal, or lump sum borrowed, remains the same. This loan suits the investor who wants to build a portfolio, buying multiple properties over a number of years.
A mortgage broker will explain all this and more, simplify the process and help you secure the right loan – usually at no cost. It’s one of the best investments you’ll ever make.