Property investment mortgages are not too different from any other type of home loan. Like other loans you can choose fixed, variable or split interest rates. But there are two types of loans that tend to be more attractive to investors.

  • Interest only mortgages
  • Capital Repayment mortgages

Interest only

With most standard home loans your repayments combine the interest you owe on the principal amount you borrowed, plus a little bit of the that principal (capital amount borrowed) as well. In this way you slowly chip away at that original amount over the term of the loan.

With an interest only loan the principal remains the same. You only have to pay the original amount you borrowed at the end of the mortgage term or when you finally sell the investment property(whichever is the sooner)and hopefully make some capital gain.

This type of loan is useful for investors because:

  • Your monthly repayments are less than they would be if you were pay off principal as well.
  • You can get tax deductions on the interest payments, but none on principal repayments.
  • It makes it easier to calculate the true returns from a property.

Capital Repayment

With a Capital Repayment mortgage your monthly payments will be made up of interest, plus a small amount off the original capital borrowed.

Advantage

  • Gradually reducing the capital amount borrowed, will give you more spare equity and capital on final sale of the property.
  • You will pay less in interest to the lender over the term of the mortgage
  • Disadvantage

  • You can only claim the interest portion of the monthly payments as an expenditure for tax purposes when declaring the income you are receiving from the monthly rental received. As the interest reduces each month, in line with the reducing balance of your mortgage, you may find that you tax liability increases.
  • Line of credit

    If you already own a property, a line of credit is a way for you to tap into any equity you have built up in that property and, use it as a deposit for your investment property.

    A line of credit loan allows you to draw from a fixed amount at any time to pay for whatever you want. It's kind of like a credit card with a big limit but the equity in your home acts as security for the loan.

    Find the best loan for you

    Like when choosing any other home loan, you need to compare rates, features, fees and charges.

    Continue to information about tax and your investment property.

Common Mortgage Broking questions

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