Blog Choosing the right investment home loan

Choosing the right investment home loan

30 January 2018

There are completely different criteria for buying an investment property versus buying a home to live in.

When searching for your own home, you’re more focused on personal matters such as proximity to your work, your child’s school, and if it has all the features you want.

When it comes to searching for an investment property you tend to focus more on the rental yield, local vacancy rate and capital growth potential. The ideal home loan for your investment property may also have different features compared to your owner occupied home loan.

An investment home loan should cater to each different investor’s needs. Here are the top things to look out for when choosing the best home loan for your investment property:

Interest rate type

With an investment home loan, there are three types of interest rates to choose from

  • Variable rate: The interest rate can move up and down according to the official cash rate and your lender's funding costs. This means your monthly repayments can also move up and down.

  • Fixed rate: Your interest rate will remain unchanged for an agreed period of time, meaning you will not be affected by the changes in the official cash rate whether it goes up or down.

  • Split loan: The interest rate on your investment home loan will be partly variable and partly fixed.

100% redraw offset facility

redraw offset facility is a sub-account linked to you home loan that lets you offset the loan balance you have in your savings account thereby reducing the interest payable. You can also redraw the money you have in your account using a Visa Debit card linked to it.

To illustrate, let’s say your investment loan balance is $400,000 and you have $30,000 in your redraw offset account. The amount you have in your offset account will be 100% offset against the loan balance, so that will be $400,000 - $30,000 = $370,000. You will only pay interest on $370,000 instead on the $400,000. Our offset calculator can help you calculate your own savings.

You can also redraw the money any time you need it. If you have a redraw offset facility, the amount of interest you pay is reduced but the size of your regular repayment remains the same, helping you to pay off your investment loan sooner.

Take note that a redraw offset facility is only available with a variable rate loan.

Repayment type

You have probably heard the term Principal and Interest (P&I) which means you are essentially repaying the principal (original loan amount) as well as the interest as it’s charged. Another option that some investors consider is Interest-Only terms.

An interest-only loan is a type of home loan where you only repay interest on the loan, and none of the principal, for a period of time. 

In the short-term, moving to an interest-only loan will lower repayments significantly, although in the long-term you will actually pay more interest overall.

Reducing your repayments in the short-term is the main benefit of an interest-only loan. However, after the interest-only period - which is usually 3 to 5 years - ends, you will need to repay the principal and the interest on the loan.

Get started investing in a property today by exploring our low interest rate investment loan products.

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