Understanding Investment Loan Features
When buying an investment property in Victoria, understanding the specific features of investment loans can make a significant difference to your property investment strategy. Investment loans differ from standard home loans in several key ways, offering specialised features designed to support property investors.
Interest Rate Options for Investment Properties
Investment loans typically offer both variable interest rate and fixed interest rate options. Variable rates fluctuate with market conditions, whilst fixed rates provide certainty for a set period. Many lenders also provide interest rate discounts for investment loans, particularly for larger loan amounts or existing customers.
When calculating investment loan repayments, consider:
• The loan amount and loan to value ratio (LVR)
• Current interest rates and potential rate movements
• Whether you'll make interest-only or principal and interest repayments
• The impact on your overall borrowing capacity
Loan to Value Ratio and LMI Considerations
Most lenders allow up to 90% LVR for investment properties, though many investors prefer to keep their LVR at 80% or below to avoid lenders mortgage insurance (LMI). LMI becomes payable when borrowing above 80% of the property value, adding to your overall investment costs.
For those building an investment property portfolio, maintaining lower LVR ratios provides more flexibility for future purchases and better access to investment loan options from banks and lenders across Australia.
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Property Types and Investment Strategies
Investment loans are available for various property types including:
- Stand alone dwelling
- Town house
- Apartment units
- Commercial properties
When you research property options, consider the rental yield potential of each property type. Apartments and town houses in inner Melbourne often provide higher rental yields, whilst stand alone dwellings may offer better long-term capital growth prospects.
Negative Gearing Benefits
One key feature of investment loans is their eligibility for negative gearing tax benefits. When your rental property expenses (including loan interest) exceed rental income, you can claim this loss against your other taxable income, potentially reducing your overall tax liability.
Application Process and Documentation
The investment loan application process typically requires:
• Recent bank statements (usually 3-6 months)
• Proof of income and employment
• Details of existing debts and expenses
• Property research and rental assessment
• Deposit and stamp duty calculations
Many lenders now offer a streamlined application process for investment loans, particularly for borrowers with existing lending relationships or those purchasing their first investment property.
Specialised Investment Loan Features
Several features make investment loans particularly suitable for property investors:
Interest-Only Repayments: Many investment loans offer interest-only periods up to 5-10 years, maximising cash flow and tax deductibility.
Offset Accounts: Some lenders provide offset facilities, allowing you to reduce interest charges without losing tax deductibility.
Redraw Facilities: Access additional funds for property improvements or further investments.
Multiple Security Properties: Established investors can often use existing properties as security for new purchases.
Building Your Investment Property Portfolio
For Victorian investors looking to build wealth through property, understanding how investment loan features support portfolio growth is crucial. Many lenders offer preferential terms for subsequent investment property purchases, including:
• Reduced documentation requirements
• Enhanced borrowing capacity calculations
• Portfolio-based lending assessments
• Cross-collateralisation options
Professional Guidance for Property Investment
Given the complexity of investment loans and the property market, working with experienced professionals can help you access the most suitable investment loan options. At ZARALEND, we work with a panel of lenders to find investment loans that align with your property investment strategy and financial circumstances.
Our team understands the Victorian property market and can assist with borrowing capacity assessments, helping you determine how much you can invest in real estate whilst maintaining financial stability.
Whether you're buying a rental property for the first time or expanding an existing portfolio, understanding these investment loan features will help you make informed decisions about your property investment journey.
Call one of our team or book an appointment at a time that works for you to discuss your investment loan requirements.