Are you thinking of taking out an investment property mortgage? There’s plenty of options available to fund your purchase of a second or third home – but be aware that you may need a high deposit or equity in an existing property to be approved. The team here at Legendary Mortgages & Insurances can offer you the best advice on the right mortgage for your portfolio.
An investment property home loan is a mortgage you take out on a house you don’t actually plan to live in. You might plan to touch up and renovate the house and sell (or ‘flip’) it for a higher price, or you might want to rent it out and receive an ongoing stream of income.
But because you won’t be living in the home, the terms of your mortgage – down to the loan amount itself – will be different to a so-called “owner-occupied” mortgage.
For instance, investment property mortgages usually require higher deposits, often between 20 to 40% of the house price.
But that doesn’t mean that you’re priced out of investments property if you don’t have the cash for a large down payment. There are other options to get that new house – and one of these is using the equity in your existing home for your deposit.
Equity refers to the difference between a property’s value and the amount you still owe on it. For instance, if you purchase your house for $500,000 and have $300,000 of that original mortgage remaining, the equity on the home is $200,000.
You could use the equity in your home or your family home as a deposit on your investment property.
Where do I start?
Buying an investment property can be a great way to boost your income, secure your retirement and protect your financial future. But with so many options available, it can be challenging to know where to start your real estate journey.
That’s where a financial adviser from Legendary Mortgages & Insurances, can help. We can aid you in setting your financial goals, save money and choose the best rental property mortgage for your circumstances. Talk to us, and we’ll help you work out whether the financial commitment of an investment home loan would be suitable for your needs.
There are various financing options available for your investment property. The major ones are:
They all have their own distinct advantages and disadvantages. Which one is correct for you? It entirely depends on your unique needs and circumstances.
As the name suggests, a fixed-term mortgage is one in which your interest rate is fixed for a specific term, usually between six months to five years. That offers you more predictability for your payments, helping you better understand what your costs will be and set a budget with greater ease.
This presents more of a gamble but could come with potential wins. Floating mortgage rates go up and down as the lender’s mortgage rate changes. It means that you have opportunities for early payments, too, which could see you be debt-free earlier.
However, if interest rates rise significantly, your budget could take a real hit, which is why it pays to be careful.
An interest-only mortgage is one in which you are only required to pay the interest on the loan – not the principal. You only need to repay the principal once the loan term finishes.
Some lenders will allow you to use the equity in your home as security on your investment property mortgage. However, be aware that while this may save you cash in the short term, if you miss your repayments, or your tenants fail to pay their rent when it’s due, you risk losing your house.