Investment Property Interest Rates

Investment Property Interest Rates

Most of us are familiar with home loan interest rates because the costs to ‘working families’ are often touted each month as the Reserve Bank releases its decision on official interest rates. However if you are considering an investment property then you are probably wondering how investment loan rates compare to traditional home loan interest rates and whether there is anything you need to know about choosing the best interest rate for an investment loan.

Here we have answered several common questions we hear all the time about investment loan rates to help you in your decision to become a property investor. However if we have missed a question which is plaguing you then please contact us now, all fill in an online enquiry form so we can contact you when it is more convenient for you.

Featured Investment Home Loan

Loans.com.au – Dream Catcher​ home loan is one to consider if you are planning to invest in property. A great offer to pay down your mortgage sooner with a low variable rate and a $0 application fee.

• Interest Rate of 5.85%
• Comparison Rate of 6.21%
• Application Fee of $0
• Maximum LVR With LMI: 80%
• Minimum Borrowing: $50,000
• Maximum Borrowing: $750,000

Enquire about the Loans.com.au – Dream Catcher​ terms and conditions

Featured Investment Home Loans

Home Loan	Details	Interest Rate (p.a.)	Comp Rate^ (p.a.)	App Fee / Ongoing Fee	Max LVR	Min & Max Borrowing
Loans.com.au – Dream Catcher​	One of the most competitive basic loans on the current market.	5.85%	6.21%	$0 / $375	80%	$50,000 / $750,000
Bankwest Online Home Loan	A low rate home loan suitable for investors. Online exclusive offer.	5.97%	5.97%	$0 / $0	80%	$100,000 / $1,000,000
Illawarra Home Loans Bank Beater Home Loan	A Low variable rate and a rate cut of 0.05% p.a. after 5 years.	6.07%	6.35%	$0 / $345	90%	$250,000 / $1,000,000
State Custodians Mortgage Company Breathe Easy Offset Loan	A market leading interest rate with low fees.	6.27%	6.18%	$0 / $0	95%	$150,000 / $1,000,000
Aussie Optimizer Fixed Rate Home Loan – 3 Year Fixed Rate	A low variable interest rate home loan from Aussie Home Loans with no ongoing fee.	5.99%	6.80%	$500 / $0	90%	$100,000 / $2,000,000

Are investment loan rates the same as home loan rates?

Some lenders will offer the same interest rates on their investment loans as they do on their home loans, while others will have separate loan products which are specifically designed to be used for property investment and therefore have a different interest rate structure. While the individual interest rates may be different for an investment loan from a certain lender as compared to their home loan rate, investment loan rates behave in the same way as home loan rates and if you choose a fixed interest rate for your investment loan you will not be subject to rises in the official rate, and if you choose a variable investment loan you can enjoy decreases in the cash rate.

How are investment loan rates calculated?

The majority of Australian lenders calculate their investment loan interest daily, and that interest compounds to your payment date. This means that on the first day of your payment cycle you are charged interest on the balance of your loan, on the second day of the payment cycle you are charged interest on the balance of your loan plus the interest from the first day and so on until you make your payment.

Since many investment loans are repaid in interest only repayments a common feature is the option to pay your interest in advance. This allows you to pay all of the interest for the coming financial year in one lump sum and you often qualify for a discounted rate if you choose this option. You can also benefit from paying your interest in advance because you are able to claim the interest paid in the financial year sooner, because you have already paid it and you don’t have to wait until the end of the financial year to claim it back.

How can I minimise the interest I pay on my investment loan?

While compound in daily interest is your friend in savings accounts, on your investment loan it is costing you a lot of money. That is why you should consider these two simple ways to minimise the interest you pay on your loan.

1 All in one account

An all in one account combines your investment loan, your savings accounts and all of your transaction accounts. This means that you have all of your wages, either investment income, rental income and your savings and emergency funds in your loan account. All of the funds which are above the minimum investment loan repayment amount are available for you to access when you need them as you would from a traditional transaction account however until you need those funds they are applied against your home loan balance to minimise the interest you are charged. For example if your investment loan is $270,000 and you have $20,000 in wages, savings and other income in your all in one loan account then on that day you are only charged interest on $250,000 and this loan feature has the potential to save you thousands of dollars and years off your loan.

2 Offset account

An offset account saves you money in a similar way to an all in one account however it is a separate account to your loan. To receive the maximum benefits make sure your investment loan is linked to a 100% offset account so that the funds in your offset account save you 100% of the interest. In a similar way to an all in one account you can have all of your wages, income and savings kept in your offset account and the value of your offset account reduces the amount of interest you pay. Having a separate offset account also helps you more clearly see the value of your everyday funds, separate to your loan amount.

Do I want to minimise the interest I pay on my investment loan?

Investments, and specifically property investments, are often hailed as the antidote to all of your taxpaying woes so you may be wondering why you want to minimise the interest you pay on your investment loan if you are going to claim it back anyway. Firstly you need to be able to afford your investment loan repayments before you can claim any of them back and if your repayments do not fit in your budget then you’re not going to see any benefit from investment. However if you are able to minimise the interest you pay and therefore minimise the repayments you need to make each month an investment which previously seemed unaffordable is now within your reach.

Secondly you can only deduct what you have paid and so you will need to discuss with your accountant which tax bracket you are in, how much tax you pay and how much you are eligible to claim back to make sure that you are paying enough to make a significant claim but not more than you are able to claim back.

Do I want a fixed or variable investment loan rate?

If you are worried about being able to afford your investment then you may want to opt for the stability of a fixed interest rate to get you started in the investment property market. You can choose a fixed interest rate term from one year up to 10 or 15 years depending on your lender. During your fixed interest rate term your investment loan rates will not fluctuate if official cash rates rise so you can budget for the exact amount of your repayments each month. Just keep in mind that you are not able to benefit if official rates go down during your fixed term, and at the end of your fixed term your interest rate may revert to a higher variable interest rate.

Choosing to fix your investment loan rate often only makes sense if you are fixing when interest rates are at their lowest and since we have seen almost consecutive interest rate rises in 2009 and 2010, since official rates were at an emergency levels then you may still be able to find an attractive fixed interest rate on an investment loan before rates reach their peak. Unfortunately many people tends to fix their interest rates at the peak of the interest-rate cycle because they have been subjected to seemingly endless interest rate rises and they don’t feel that they can take any more. However this is the worst time to fix your interest rate because once rates reached their peak they are almost guaranteed to decrease again and this is when you are able to benefit from a variable interest rate.

If you want a more flexible investment loan you may choose a variable investment loan rate because variable-rate loans offer you the flexibility of features such as additional repayments and redraw facilities, and offset accounts to help you save money. Also if you need to sell or upgrade your investment property refinancing from a variable interest rate loan is often more affordable than breaking a fixed rate term.

Of course if you can’t choose between a fixed and variable interest rate on your investment loan you can choose to split your loan where a portion is charged a variable interest rate and a portion is charged a fixed interest rate. This can help you minimise the effects of interest rate rises while still being able to enjoy rate cuts.

Many investors who have left the stock market because of world economic trends are seriously considering returning to bricks and mortar. The main concern however has been the continual rise in interest rates since the historically mid-recession lows of 2009 compounded by the facts of:

• Rising interest rates
• Home affordability dropping
• Credit stress

Although never welcome, higher interest rates do indicate a more buoyant economy generally, and it doesn’t have to be all that bad if you can properly manage your cash flow.

Perhaps one of the anomalies in today’s economic climate is that while interest rates are rising home affordability is dropping and as a result property investors are finding it harder to obtain investment loans which leaves:

• Housing prices rising
• Acute housing shortage in Sydney and Melbourne

Other experts are telling us that one of our main problems is that of record immigration levels that in turn are pushing up property prices. Adding to the mix is the acute housing shortage in the major cities of Sydney and Melbourne.

This all tends to have one believe that property prices will continue to rise, especially in selected markets, and that media hype on anticipated interest rate rises has more effect on the market than does the actual rise itself once it takes place.

Investment Interest Rates positive news.

The positive news for property investors is that housing experts are forecasting rental prices to rise by a minimum of 7% over the next two years. (an increase of about $40 on average).

Sydney rentals are expected to rise by $107 in the same time and Melbourne is expected to see a $70 increase. Although this is not good news for those renting it does put a smile on the faces of investors.

Two new loan considerations.

With all that said there appears to be two main considerations to make if you intend to set up a new loan on your investment property.

The first is what interest rate you will expect to pay on your new loan and what you will expect to pay as time goes on. The second is what amount, if any, do you plan to pay down on your new loan as you make repayments. With this in mind the following split loan set ups are worth consideration.

• Fixed – Investment interest rates only combined with interest plus capital repayments.

• Variable – Once again this involves Investment interest rates only combined with interest plus capital repayments but the interest is variable.

• Fixed and variable – This set up involves a mixture of a fixed investment interest rate and interest only loan with a variable plus capital loan.

• Variable and fixed – Similar to the other but in reverse. On this set up we see a variable interest/interest only loan and a fixed interest plus capital loan.

• Interest only – A mixture of both fixed interest and variable interest but nothing off the principal.

• Interest and principal – A fixed interest plus capital and a variable interest plus capital loan.

Whatever loan meets your particular requirement best, one of the most important aspects to keep in mind is what interest you will be expected to pay initially and what interest you will be expected to pay over the term of the loan, as well as the amount of pay down you can achieve off your principal.

The interest rate that is offered with a loan can suit different people. As each person is unique in their needs it is important to think about what type of interest rate you are suited to. Furthermore, the interest rate can greatly affect how much you will earn on your investment loan so it is important to find the loan which offers the best interest rate and all round loan package. This article will explain what interest rates are offered with investment property home loans and how you can find the best one.

What Interest Rates are Available

The interest rate is one of the main factors that will affect the return on your investment. This section will explain what interest rates are available and who they are suited to:

• Fixed. Most investment loans will offer a fixed interest rate term. The fixed interest rate allows the investor to lock in an interest rate for a selected period of time. This can be anywhere from 1 – 10 years usually. These interest rates are suite to people who like stability and would like to know what their repayments will be each week.
• Variable. The most common interest rate offered with investment loans is the variable rate. The variable interest rate loans offer you an interest rate that will fluctuate. The interest rate can either rise or fall depending on the economic conditions. If the rates rise then you repayments will and vice versa. The variable interest rate investment loans are suite to people who would like to experience the times when the interest rates are lowered. Furthermore, the variable interest rate is also suited to people who would like additional features and flexibility with their repayments.
• Split. Most investment loans will however give you the ability to split the loan between the two interest rate plans. This means that you will receive the benefits and the disadvantage of both types of interest and will be sheltered from the full effects of a rate rise.

How to Find the Best Interest Rates

After you have identified what interest rate you would like on your investment loan you must then find the best loan with that interest rate. You can do this by:

• Making home loan comparisons. Home loan comparison calculators can help you compare the loans that are available so you find the best one. The home loan comparison calculators will ask you details about your proposed investment and your preferred interest rate and calculate which loan will cost you the least amount of money, thereby increasing the amount of money you will make on the investment. To make investment loan calculations based on your individual needs and goals, let a Home Loan Finder consultant do the calculations.
• Using special features. If there are special features offered with a loan than you should use them. These features may reduce the interest that is charged to the account. These features may include the mortgage offset accounts or the ability to make additional repayments. If you do not plan on using these features then do not select the loan as you will be paying for people who do.

The interest rate that is offered with loans is one of the most important factors that will affect how much you pay onto the loan. If you can choose the right type of interest rate and the right loan you can dramatically reduce the amount you will pay on your investment loan.
Investment property interest rates are similar to those of normal loans in that you can usually choose between a fixed or variable interest rate. However, people who are borrowing money for an investment property may be seen as a low risk borrower and may receive discounts. This article will explain what discounts the borrower can receive on investment property interest rates and how to find the lowest interest rate.

Can you Receive Discounted Investment Property Interest Rates

When you borrow money from a bank there are many ways that you can save money by reducing the amount of interest that you will pay. You can simply reduce the amount of interest that is charged to a loan by taking advantage of special offers that are offered by the providers. These offers may include:

• Honeymoon rates. Many providers will offer honeymoon or introductory interest rate discounts for the first year of the loan. Even though these are limited in time offers it is important to take advantage of these offers as they can save you a lot of money.
• Discounted interest rates for investors. People who are buying investment properties are generally considered to be low risk borrowers. This is because they will usually have a decent income, an added source of income from the investment property and perhaps even another home that can be used as collateral. For these reasons many of the investment loans that are offered by providers will give a discounted interest rate.
• Discounted interest rates for borrowing more money. If you borrow more money from a provider you may get a discounted interest rate or other additional features. Many home loans and investment loans will offer different interest rates for different borrowing ranges. For example, if you borrow over $500,000 you will receive a 0.5%p.a. discount on your interest rate compared to those who borrow below that amount. By borrowing more money you can get a better investment property and save on your interest rate.

How to Find the Best Investment Property Interest Rate.

The interest rate is one of the largest factors that will determine how much you pay on the loan. Generally, if the interest rate is lower you will end up paying less on the loan. This section will provide you with a few tips on how to find the lowest interest rate for your investment property. These tips are:

• Use loan calculations. Most people will use home loan calculators to find the best investment property home loan. The home loan calculators ask details about the loan you would like to take out and give you an option of the bets loans that will suit your needs. This is a great way to find the investment property home loan with the lowest interest rate as the amount you pay on a loan is proportional to the interest rate that is offered.
• Compare the providers. Another way to compare investment loans is to compare lenders offers to make sure you are getting the lowest interest rate with your investment property loan. While this would normally be a time consuming process, with the help of Home Loan Finder you can make comparisons over the phone in just minutes.

When you borrow money it is important to look for a loan with the lowest interest rate. The interest rate can be one of the main contributors to the overall cost of the loan. However, when you borrow money for an investment property you may be able to get discounted interest rates. These can come in the form of honeymoon rates, discounted interest rates for investors and discounted interest rates for borrowing more money. If you can get the lowest interest rate available you can be sure that you are saving money.