Buying an investment property is one of the most popular ways to build wealth in Australia. Whether you're looking at properties in Prestons or elsewhere across the country, understanding investment property finance is crucial to your success as a property investor.
At Credible Finance, we help clients access investment loan options from banks and lenders across Australia, making the investment loan application process more manageable for aspiring property investors.
Understanding Investment Property Loans
An investment loan is specifically designed for purchasing a property that you intend to rent out rather than live in yourself. These rental property loans work differently to standard home loans and come with distinct investment loan features that can benefit property investors.
The key difference is that lenders assess investment loans based on both your income and the expected rental income from the property. This means you'll need to demonstrate that the rental property can generate passive income to support the loan repayments.
Investment Loan Options and Products
When exploring investment loan products, you'll encounter several options:
Variable Rate Loans
A variable interest rate moves up or down with market conditions. These loans often provide more flexibility, allowing you to make extra repayments and potentially access features like offset accounts.
Fixed Rate Loans
A fixed interest rate remains unchanged for a set period (typically 1-5 years), giving you certainty about your repayments. This can help with budgeting and protect you from rising interest rates.
Interest Only vs Principal and Interest
Many property investors choose interest only investment loans, where you only pay the interest portion for a set period (usually 5 years). This reduces your repayments and can maximise tax deductions. However, principal and interest loans help you build equity faster and reduce your loan amount over time.
Investment Loan Features and Benefits
Property investment loans come with several investment loan benefits:
- Negative gearing benefits: When your investment property expenses exceed your rental income, you can claim this loss against your taxable income
- Tax benefits: Interest charges, body corporate fees, maintenance costs, and stamp duty are often claimable expenses
- Portfolio growth: Building a property portfolio can accelerate your path to financial freedom
- Leverage equity: As your property increases in value, you can use equity release to fund additional investments
- Passive income: Rental income provides ongoing cash flow
Working Out Your Investment Loan Amount
Calculating investment loan repayments and determining your investment loan amount depends on several factors:
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Loan to Value Ratio (LVR): Most lenders require an investor deposit of at least 20% to avoid Lenders Mortgage Insurance (LMI). However, you can borrow with a lower deposit if you're willing to pay LMI.
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Borrowing capacity: Lenders assess your borrowing capacity based on your income, expenses, existing debts, and the expected rental income.
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Rental income assessment: Lenders typically only count 80% of the expected rental income to account for vacancy rates and maintenance costs.
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Property investment strategy: Your long-term goals will influence how much you should borrow and which investment loan features suit your needs.
Ready to get started?
Book a chat with a Finance & Mortgage Broker at Credible Finance today.
Investment Loan Interest Rates
Investor interest rates are typically higher than owner-occupier rates because lenders view investment properties as higher risk. However, you can often secure interest rate discounts by:
- Maintaining a lower LVR (borrowing less than 80% of the property value)
- Having a strong credit history
- Choosing certain loan features or packages
- Building a relationship with your lender
The difference between investment property rates and owner-occupier rates is usually between 0.25% to 0.50%, though this varies between lenders.
The Investment Loan Application Process
When you're ready to start your investment loan application, you'll need to provide:
- Proof of income (payslips, tax returns, or financial statements)
- Details of your assets and liabilities
- Information about the investment property
- Evidence of your investor deposit
- A rental appraisal showing expected rental income
As mortgage brokers, we can streamline this process by connecting you with suitable lenders and helping you prepare your documentation.
Investment Loan Refinance Options
If you already own an investment property, an investment loan refinance might help you:
- Access a lower interest rate
- Change from interest only to principal and interest (or vice versa)
- Release equity to fund another investment
- Consolidate debts
- Switch between variable rate and fixed rate options
Our refinancing services can help you review your current position and identify opportunities to improve your investment property finance.
Maximising Your Property Investment Strategy
Successful property investing isn't just about securing the right investment loan. Consider these factors:
Location and Growth Potential
Areas like Prestons and other growth corridors across Australia offer different opportunities. Research vacancy rates, infrastructure development, and local employment to identify properties with strong capital growth potential.
Managing Cash Flow
Understand all costs including loan repayments, body corporate fees, insurance, maintenance, and periods when you might not have rental income.
Tax Planning
Work with your accountant to maximise tax deductions and understand the tax benefits of negative gearing and depreciation.
Portfolio Growth
Once you've established your first investment property, you can leverage equity to expand your portfolio and accelerate your wealth-building journey.
Why Choose Credible Finance for Your Investment Loan
As a Finance & Mortgage Broking business, we help property investors throughout Prestons and across Australia access a wide range of investment loan products. We compare investor borrowing options from multiple lenders to find solutions that align with your property investment strategy.
Whether you're buying your first investment property or expanding an existing portfolio, we can guide you through the investment loan features, help with calculating investment loan repayments, and support your journey toward financial freedom.
Ready to explore your investment property loan options? Call one of our team or book an appointment at a time that works for you. We're here to help you take the next step in building wealth through property investment.