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Loan types and finance structure


The structure of your finance is important.  If you incorrectly structure your debt it could cost you thousands in lost taxation benefits.

The main rule to stick to here is don’t pay principal and interest on your investment property if you still have money owing on your home.  The interest on your owner occupied home is not tax deductible while the interest on an investment property is 100% tax deductible.  It makes no sense to reduce your investment loan while still owing money for your owner occupied home.

Be aware of fixing your interest rate for longer than your goal with the investment property is, e.g. don’t fix your rate for five years if your goal is to sell the property in three years time, as repaying fixed rate loans early can carry penalties.

If using a flexi mortgage on your home for deposits on investment properties keep the account separate for any personal flexi account you may have, ensuring no confusion around claiming interest as tax deductible.

Don’t have all of your investment debt with one bank, some banks get nervous with an individual having too many investment properties and some will treat you as a commercial borrower when you get past a certain number.  This can not only effect your ability to borrow, but can also effect the interest rate they will charge you.
Arranging 100% of the purchase price of an investment property plus costs is common practice.  This should not be confused with a first home buyer trying to raise 100% finance.  It is very easy to leverage equity held in your existing property to raise all costs to complete your purchase.

Remember some lenders have other fees separate from the interest rate.  You should take these into account, application fee, account keeping fee, discharge fee, portability fee, split account fee.  It is advisable to set up internet banking for the bank account your rent goes into as it makes it easy to track rental payments.

Make sure you budget and plan to have access to funds to cover unforeseen vacancies and or maintenance.

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