There are a variety of ways to finance an investment property.
Seek independent financial advice before you commit to any purchase. Look at your investment goals and budget to determine which way to go.
If you’re not using your own finances, there’s a wide variety of loan types and conditions across financial institutions. Do your research to help work out the best solution for your situation. If you’re stuck, discussing your plans with a mortgage broker is a good place to start.
What are the loan options?
There are a number of loan types you can explore to get the most out of your circumstances.
If you’ve built up equity in your current property or properties, you could use this to borrow against your investment property for the full purchase, or just the deposit. This presents the opportunity to refinance your loan, meaning you could save through more competitive rates and conditions.
Another option is an investment property loan. These usually come with higher interest rates and costs, meaning you may not be able to borrow as much as for an owner-occupier loan. However, one advantage is you only have to use one property as security, compared to two if you were refinancing with a less expensive loan.
Most lenders will lend up to 90% of the investment property’s value for this type of loan, so you will need additional funds to complete the purchase.
Another option to explore is an interest-only loan. These loans provide an agreed period where you’ll only have to make interest payments and not any towards the principal.
The interest-only periods offered can vary widely, but generally are for five years. These can be useful if you think you’ll be able to sell your property for a profit before the interest-only period expires. Keep in mind these loans revert to principal and interest after the agreed period ends and may be more expensive than a straight principal and interest loan over the long term.