Investment Loan – A Secured Loan for Your Investments
An investment loan is a form of home mortgage which you can take out to purchase a property investment. It is a mortgage intended for those who want to purchase a property and rent it out to earn income from it, but cannot afford to buy a house without a line of credit.
How does an investing loan work?
Investment loans usually operate under a similar basis to all other housing loans – when you purchase a home, you put down a deposit, and then the bank loans you the part of the cash you need. You must then repay the loan – plus interest paid by the lender – in monthly instalments for the duration of the loan.
Where investment loans are usually different from other forms of home loans, there are certain requirements and features for their approval. For instance, investment loans often charge a small loan-to-value ratio (LVR), which means that borrowers may need to produce a greater deposit before applying for a mortgage. They still have a marginally higher interest rate on average than home loans.
What are the benefits of investment property ownership?
There can be many advantages and challenges to the ownership of investment property. Before taking any financial decision, it may be a good idea to do your homework and seek unbiased financial advice. If you are thinking of buying a specific house, you might also want to speak to a trained lawyer or licensed carrier in your region to get more advice tailored to your case.
Although individual circumstances would vary, some of the possible benefits of possessing an investment property may include:
A source of income
If you pay off the associated mortgage, investment property lending will provide a long-term revenue source that usually rises over time in the form of rents. However, there are also expenditures that need to be taken into consideration when assessing the financial benefits of this form of investment, such as cost of maintenance and municipal taxes.
Increase in property value over time
Usually, Australian house prices have increased over time, reflecting at long-range estimates. So, broadly speaking, it could be seen that the value of investment in property has also risen over the long term. That being said, in recent years, several areas of Australia also have seen price growth declines, and the current outlook for housing price growth in the coming years has not been as optimistic as a result of the COVID-19 outbreak.
Probable tax advantages
The Australian Taxation Office (ATO) notes that a few of the costs of purchasing and maintaining a property investment can be reported as tax deductions to minimize your taxable rental profits received by the asset, as well as to theoretically lower the capital gains tax rate that you usually have to pay on the sale of the property. The ATO notes that the tax credits that you can claim for an investment property include:
- Interest in the new mortgage
- Home and Material Protection and Property Insurance
- Fees and commissions for property agents
- Maintenance and repair costs
- Council rates
- Declination in the value of such depreciating properties, such as timber flooring, rugs and curtains