Investment Loans

Investment property loans are like home loans; you have the option of a variable rate loan, fixed-rate loan or a combination of both, commonly referred to as a split loan. An investment property loan can be set up as interest-only or principal and interest. Your loan structure can differ between investors as it primarily depends on your risk strategy, repayment objectives, tax objectives, and cash flow strategies.

Principal and Interest

For a principal and interest loan, your repayments cover the interest associated with the loan and a component of the loan's principal. The repayment amount paid each month is calculated based on the loan term (i.e., 30 years, 25 years etc.), the interest rate and the loan balance. Whether the loan is fixed or variable can also affect what your repayment is month to month.

Variable Structure

Variable loans provide greater flexibility to investors as you can make additional repayments, and you may also have an offset account attached. Variable loans are ideal when interest rates are stable or when rates are on a downward trend. When rates are rising, some clients will consider fixing their rates to protect themselves against future increases.

Split Structure

Split rate loans are simply a combination of a variable loan and a fixed interest loan. This strategy is helpful if you want to manage the risk of some of your debt whilst having a variable component that can be repaid faster if necessary.

Interest Only

If your loan is interest-only, then each month, your repayments are set up to cover the interest component of your loan. Meaning the balance of the loan is not reduced during the interest-only period. Interest-only loans are usually set up to last for 1 – 5 years before switching back to principal and interest. As repayments are generally less, investors can benefit from greater cash flow from their investment.

Loan to Value Ratio

Each lender has a cap on the maximum amount of money they will lend you against the property's price. Generally, most lenders will only lend 80% of the purchase price for a residential investment loan. This is referred to as the Loan to Value Ratio or LVR. If the lending amount is higher than the lender's approved levels (i.e. 80%), the lender will require you to take up Lenders Mortgage Insurance or LMI.

Lender Mortgage Insurance

LMI protects the lender against any risk if you default on your mortgage. The insurance policy is in place to protect the lender rather than the customer. Unified Loans can assist you in calculating how much LMI you should allow once we know the purchase price and the amount of deposit available.

Refinancing Investment Loans

Deciding when to refinance an investment loan is no different to a residential loan. Interest rates vary over time, as does the motivation of lenders. The financial markets are very competitive, with new players entering the market at times targeting specific market sectors. This creates competition, and often new clients are offered better rates to promote switching. Refinancing your investment loan does not need to be difficult when you work with Unified Loans. Our Specialists will identify the right loan for you, assist you with the application and then see it through until your loan is established with the new lender. Over a 10-year investment, it is not unreasonable for an investor to move their loan to 2 or 3 lenders.

Why Unified Loans?