Frequently asked questions
Not sure? Have additional questions? Try here –
I own my own home and have a lot of equity in it. Do I need a cash deposit to purchase an investment property?
The short answer is no. If you have a lot of equity in your current home you can borrow against that equity to fund the deposit and purchase costs on an investment property purchase.
I wish to purchase a small studio apartment as an investment property but my bank said they won’t lend money to purchase such a small property. Can you help?
Most lenders require a minimum internal unit size of somewhere from 40-50sqm. This doesn’t include balconies and car spaces. If you can contribute a 20% deposit we have options that will allow smaller units and even studio apartments.
What is cross-collateralisation?
This is when more than one property (collateral) is used to secure a loan or multiple loans. This is a method used by investors to borrow 100% of the purchase price of an investment property plus the purchase costs such as stamp duty. Structuring your investment purchases like this can hinder your future investment goals and puts your lender in an avoidable position of power. It makes it more difficult and costly to change lenders and to access your equity down the track. Also if one of the properties decreases in value it may impact your ability to borrow funds for further investment.
We always recommend that you offer only one property as security for each loan. This gives you much greater flexibility.
What is an interest only loan and why would I use one to purchase an investment property?
An interest only loan is where you are only required to pay the interest each month and there is no requirement to pay down the principal balance of the loan until the interest only period finishes. Interest only period can range from 1 year to 15 years.
Interest only loans are very commonly used by investors since it maximises the interest tax deductions they can claim and minimises the required repayment which helps the monthly cash flow.
In March 2017 the Australian Prudential Regulation Authority (APRA) imposed a cap on lenders restricting them to lending no more than 30% of new residential loans as loans with interest only repayments. This has resulted in the interest rates on interest only loans being higher than principal and interest rates by up to 0.50% p.a.
Need help? Give us a call.
Why not give us a call, or send us an email and get a direct response from one of our finance experts. We’d be happy to give you a hand and help point you in the right direction.