The lending landscape for investment loans is changing rapidly due to pressure from the Australian Prudential Regulation Authority (APRA) on banks to tighten up on the investment sector. What this means is that investors may have to be prepared to pay a higher rate for an investment loan and have a larger equity contribution or deposit before a lender will approve a loan.
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Using the equity in your own home may give you the buying power you need to firm up your application with a lender.
The equity in your home is essentially the difference between what a lender deems to be the value of your property and any outstanding debt against the property. In other words if you have a house valued at $800,000 and you have a $400,000 mortgage against the property – your equity is $400,000. In lender terms you have a loan to value ratio (LVR) of 50%.
The value of this equity can be used to assist with the purchase of an investment property and used as the “deposit”. This is probably the most common strategy used to purchase an investment property. Providing you do not exceed the prescribed LVR (loan to value ratio) and meet normal lending criteria, you can borrow the full amount of the property purchase plus costs without contributing any of your own money.
|Value of existing property||$800,00|
|Investment purchase (Value)||$450,000|
|Set Up Costs (et QLD)||$17,000|
|Total Funds Required||$467,000|
|Combined loans||$ 867,000|
In this scenario you will not have contributed any of your own cash and you would have purchased an investment property with a new loan of $467,000 .
Your owner occupied loan does not have any tax benefits associated with it; on the other hand there are tax efficiencies that are associated with an investment loan and property. Much like any small business, the difference between the rent you receive and the expenses you incur (interest, rates, insurance etc.) can be offset against your taxable income.
To get a full understanding of your options and make sure that you consider the types of loans that best suit your situation you should talk to your adviser.
KEITH MARSHALL | DIRECTOR
AUSTRALIAN MORTGAGE AND FINANCIAL ADVISERS
The information provided in this page is general in nature and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information you should consider the appropriateness of the information with regard to your objectives, financial situation and needs. You should seek independent advice from your financial adviser before making any decisions.
AUSTRALIAN MORTGAGE AND FINANCIAL ADVISERS (AMAFA)
Phone: 07 3378 2056
Fax: 07 3378 2069