How to invest in properties to maintain your wealth
26 August 2019, Written by Business News Australia
With the housing market and current tax laws creating attractive investment opportunities across most Australian capital cities, conditions may be perfect to look at increasing your portfolio or investing for the first time.
Australian banks and lenders have curated a swathe of investment mortgages that can help you increase your asset base as well as maintain your wealth.
Make the most of low interest rates
Historically low official interest rates continue to make investor home loans attractive, and there are a lot to choose from.
Most banks and lenders offer a strong range of both variable and fixed interest rate investor loans, and you can use their resources to search by interest rate, making it easier to find suitable options.
Interest-only loans have long-been a popular way of investors being able to both invest in property and maintain their existing cash flow, but principal and interest mortgages can create extra profit opportunities for long-term investors.
If you're unsure about paying a 20% deposit for an investment property, Lenders' Mortgage Insurance can be an option to help you keep money in the bank and buy an investment property. LMI can be added to the home loan and help reduce your deposit amount.
Use your equity to your advantage
Another way to help you invest in property and maintain your wealth is to make your current property work for you.
You don't have to own your existing home outright or sell it to have enough equity to help you purchase an investment property.
Equity is the difference between what your property is worth and how much you still owe on it.
For example, if your property is valued at $700,000, a bank or lender will allow you to borrow up to about 80% of that value.
In this case, that's $560,000.
If your remaining mortgage is $400,000, then you have about $160,000 of equity in your home.
That is a great start to put towards an investment property.
When you use this equity and combine it with the added rental income you expect to gain in rent from your investment, it can go a long way.
Look for an offset
All types of home loans have features that add to their value, and investment mortgages are no different.
One of these features that can help you invest and maintain your wealth is access to an offset account.
An Offset feature allows you to use a non-interest-bearing account and offset it against your mortgage.
The interest part of your repayments is calculated on the difference between the two accounts, not the mortgage alone.
This can save you thousands in interest and can make a big difference if you have an interest-only investment home loan.
You can use the savings in the regular bank account for another deposit down the track, or any other purpose.
Pay it off early
Paying off your investment home loan early can save thousands of dollars in interest and help free up your wealth for other investments.
Most home loans will offer the opportunity to make additional repayments without being penalised.
Adjust the loan period part of a Mortgage Calculator to understand how much you could really save.
If you receive lump sum payments, such as investment or tax returns, putting them directly onto your mortgage can also be a good way of paying of your investment home loan early and making savings.
The smaller the mortgage you have the bigger the potential profit when you sell down the track.
If you're unsure whether you can afford regular additional repayments but would like to have the option, look for an investment mortgage with the Redraw feature.
Redraw allows you to access those extra repayments or lump sum amounts whenever you want, for any reason.
One of the keys to smart investing in any area is staying informed about the industry and being across new developments.
When it comes to investment mortgages, it can pay to be on the look out for interest rate movements and new products or loans that could save you money.
It can be a good move to give your investment loan a heath check from time to time and see if a different loan can produce a better result for you and your investment.
This article was written in partnership with Mortgage House.
Business News Australia
Author: Business News Australia