September 20, 2017
Time for an investment loan health check?
'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 and ever-changing loan features, and to refinance when required with whoever is offering the best deal.
Many loan specialists, including award winning mortgage broker Pierre Haikal of Avenue Financial, suggests reviewing 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/lifestyle,“ says Pierre.
"It's important to give your investment loan a thorough health check on a regular basis," he adds. "Following through with 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 visa 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, but the repayments are amortised over the remaining years (ie 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 tending to attract considerably higher interest rates than traditional P&I loans. Over time, the additional cost may also negate any tax benefits.
"Whatever investment strategy works for you, your loan is a key component of your ticket to wealth. A pragmatic approach is necessary, along with sound advice and a clear long term plan," says Pierre.
“In today's market, it makes sense to assess the best way forward to assist in producing passive income. It doesn't hurt to look at your financial position today, and make sure you’re on the right track.”
Can we help you? Avenue Financial has the ability to compare across a number of lenders for the best deals offered and we are not limited to only one lender. To discuss your investment finance needs please contact Pierre Haikal, Senior Mortgage Broker and Broker of the Year 2017, on 0433 014 665 or email firstname.lastname@example.org