Is it time to review your loans? | Jellis Craig

March 04, 2020

Is it time to review your loans?

'Set and forget' loans are more or less a thing of the past, and loyalty to one particular bank or lender is now uncommon.

In today's era of competitive financing and loan 'switching', the onus is on the individual investor to keep track of interest rates, offers and ever-changing loan features, and to refinance when required with whoever is offering the best deal.

Our loan specialists, at Avenue Financial, will guide you through the whole investment journey not just with the one lender, offering a review of your investment loan every couple of years.

Although there are many active investors in the property market, very few take the time to do a loan health check to identify the best way to leverage their bank borrowings and help maximise their future wealth and lifestyle.

It's important to give your investment loan a thorough health check on a regular basis, refinancing is an excellent idea if you can see a clear financial benefit, lower interest rates, a changed financial situation or freeing up equity are all valid reasons to look into refinancing.

Another common reason to refinance an investment loan is to switch from interest only to principal and interest (P&I) repayments, or vice versa. With an interest-only loan, the lender offers a standard mortgage but agrees to a term during which the borrower pays only the interest, which means monthly repayments are lower than a P&I loan. Over the term of the interest-only loan, the loan principal is unchanged.

After the interest-only term (e.g. 5 years) expires, the loan reverts to a standard P&I loan, the repayments are amortised over the remaining years (i.e. original term 30 years, remaining term 25 years). Interest only loans are appealing to a lot of investors as a way to maximise tax benefits while minimising expenses (only the interest payment on a mortgage is tax deductible). However, interest only loans are now attracting higher interest rates than traditional P&I loans; as well as scrutiny from government bodies.

Whatever investment strategy works for you, your loan is a key component. A pragmatic approach is necessary, along with sound advice and a clear long-term plan. In today's market, it makes sense to assess the best way forward to assist in producing passive income. It wouldn’t hurt to look at your financial position today, and make sure you’re on the right track.

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