Investment Loan Comparison: Top Tips to Choose Wisely

Understanding Investment Loan Options

When you're buying an investment property, selecting the right investment loan product can significantly impact your financial outcomes. Property investors in Highgate have access to investment loan options from banks and lenders across Australia, each offering different investment loan features and benefits.

An investment loan comparison involves examining several key factors including investment loan interest rates, loan structures, fees, and flexibility. The loan amount you can secure depends on your borrowing capacity, the property's value, and your deposit size. Most lenders require an investor deposit of at least 20% to avoid Lenders Mortgage Insurance (LMI), though some products allow lower deposits with LMI included.

Investment Loan Interest Rates and Structures

Interest rates represent one of the most critical aspects of any property investment loan. Property investors typically choose between variable rate and fixed rate structures:

• Variable interest rate: Fluctuates with market conditions, offering flexibility to make additional repayments and potentially benefit from rate decreases
• Fixed interest rate: Provides certainty with locked-in repayments for a set period, typically one to five years

Many property investors also consider interest only investment loans, where you pay only the interest portion for a specified period. Interest only structures can improve cash flow and maximise tax deductions, as all interest payments on investment property finance are generally tax-deductible.

Alternatively, principal and interest loans reduce your debt over time while still providing tax benefits through claimable expenses. Your property investment strategy should guide which structure suits your goals for building wealth through property.

Key Investment Loan Features to Compare

When comparing investment loan products, examine these important features:

1. Interest rate discounts: Many lenders offer rate discounts based on loan amount, loan to value ratio (LVR), or professional status
2. Offset accounts: Help reduce interest charges while maintaining liquidity
3. Redraw facilities: Allow access to extra repayments if needed
4. Flexible repayment options: Including the ability to switch between interest only and principal and interest
5. Portability: Transfer your loan to a different property without refinancing

Calculating Investment Loan Repayments

Calculating investment loan repayments requires considering several variables. Your repayments depend on the loan amount, investment property rates, loan term, and whether you choose interest only or principal and interest repayments.

For example, on a $500,000 investment loan at a variable rate of 6.5% per annum:

• Interest only monthly repayments: approximately $2,708
• Principal and interest monthly repayments (30-year term): approximately $3,160

Remember to factor in other costs when calculating your investment returns, including stamp duty, body corporate fees (for apartments), property management fees, and the vacancy rate in your area. These expenses affect your need for rental income to cover costs and achieve positive cash flow or leverage negative gearing benefits.

Tax Benefits and Financial Considerations

Property investment loans offer substantial tax benefits that owner-occupier loans don't provide. Understanding these advantages is essential for your investment property finance strategy:

• Negative gearing benefits: When investment property expenses exceed rental income, you can offset losses against other taxable income
• Interest deductions: All interest charges on your investment loan are tax-deductible
• Claimable expenses: Depreciation, maintenance, council rates, insurance, and property management fees can maximise tax deductions

These tax benefits help build wealth over time, even when properties don't generate immediate positive passive income. Many Highgate investors use equity release strategies to leverage equity from existing properties for portfolio growth.

Investment Loan Refinance Opportunities

Market conditions and lender products constantly evolve. An investment loan refinance might be appropriate when:

• Your current lender's investor interest rates become uncompetitive
• You need to release equity for additional purchases
• Your fixed rate term is ending
• You want to consolidate multiple rental property loans
• Better investment loan features become available

Refinancing can improve your cash flow, reduce interest costs, and support your journey toward financial freedom. However, consider exit fees, application costs, and potential LMI charges when evaluating whether refinancing makes financial sense.

Investor Borrowing Capacity

Lenders assess investor borrowing differently than owner-occupier applications. They typically apply a lower assessment rate for rental income (often 80% to account for vacancy rates and management costs) and scrutinise your serviceability more carefully.

Factors affecting your investment loan application include:

• Your employment income and stability
• Existing debts and commitments
• The property's rental yield and location
• Your deposit size and genuine savings
• Your credit history and financial behaviour

For loans for professionals including doctors, accountants, and lawyers, some lenders offer preferential terms with higher borrowing limits and reduced deposit requirements.

Choosing the Right Investment Loan Product

Selecting suitable investment loan products requires aligning loan features with your property investment strategy. Consider:

• Short-term focus: Variable rates offer flexibility if you plan to sell or refinance soon
• Long-term holding: Fixed rates provide certainty for budgeting and planning
• Portfolio expansion: Loans with offset facilities help you save for your next investor deposit
• Cash flow management: Interest only structures maximise available funds

Highgate residents looking to expand their investment portfolio might also explore rentvesting strategies or consider buying your first investment property in more affordable markets.

Working with experienced mortgage brokers who understand investment property finance ensures you access appropriate products and structure your loans tax-effectively. Professional guidance helps you compare features, negotiate better investment property rates, and structure finance to support your wealth-building goals.

At Luxe Finance Group, our team specialises in property investor loans and can help you compare investment loan options tailored to your circumstances. We work with multiple lenders to secure competitive rates and suitable loan structures that align with your investment objectives.

Call one of our team or book an appointment at a time that works for you to discuss your investment loan needs.