I'm Jason Birks, a Brisbane mortgage broker. I help first-time investors and people building a portfolio, and I also review how existing investment loans are set up.
Structure comes first
How your loans are set up matters as much as the rate:
- Keep investment and home debt separate. Separate loans or splits make it much easier to track the interest that may be tax deductible. Your accountant will thank you.
- Avoid tying properties together where you can. Using one property as security for another (cross-collateralisation) can make it harder to sell, refinance or change lenders later.
- Think about where your cash sits. An offset account on your home loan, rather than paying down the investment loan, is a common setup. Check the tax side with your accountant.
Using equity for the deposit
If your home has gone up in value, you may not need cash for the deposit. Lenders usually let you borrow up to 80% of your property's value without LMI, minus what you already owe. That usable equity can go towards the deposit and costs of an investment property, set up as its own split.
Interest only or principal and interest
Interest only keeps repayments lower, which can help cash flow, but the rate is usually higher and you aren't paying the loan down. Interest only periods are limited, usually to five years at a time, and repayments jump when they end. I'll show you both options side by side. More in my interest only guide.
How lenders count your rent
Lenders don't count all your rent. Most use a percentage of it to allow for vacancies and costs, and they test your repayments at a buffered rate. That's why borrowing power can drop with each property you buy. Lenders differ on how much rent they count and how they treat your existing debts, so the lender you choose for this purchase affects whether the next one is possible.
Questions people ask
How much deposit do I need for an investment property?
Usually 10% to 20%, plus stamp duty and costs. Below 20% you'll normally pay LMI, unless you qualify for a professional waiver.
Can I use the equity in my home?
Often, yes. Lenders usually let you borrow up to 80% of your home's value, minus what you owe, and that can fund the deposit and costs.
Should I go interest only?
It depends on your cash flow and plans. Interest only can make sense for a while, but it costs more over time. I'll run the numbers both ways.
Do I need a different lender for each property?
Not necessarily, but it can help. Spreading loans across lenders sometimes keeps borrowing power up and avoids properties being tied together.
