Investment property loans
Rental Property Loans for Property Investments in New Zealand
Most people when they look into property management or investing in property they will require a loan to finance this next step on the property ladder but before you take the plunge and enter the world of property management you will have to do the math and work out if the investment is the correct one for you. Read on to discover what is needed when it comes to getting rental property loans.
Talk to an expert
To get a good balanced view as to whether or not you can afford to invest in property you can talk to an investment property lending specialist, they can come and talk to you and offer their advice on the lending options available to you and most importantly what it could cost you every month. You need to remember if you are relying on a tenant to cover the costs every month will you have enough funds to cover the monthly costs of an empty property.
Borrowing to Invest
Borrowing to invest is also known as leveraging. You are leveraging your current assets to invest in something larger that you could not otherwise purchase. The equity you have in your current home may be much more than you realize but borrowing needs to be well structured to achieve the best outcomes. We have a spreadsheet you can use to work out the pre-ta and post-tax cash flows so you know exactly what the rental property will add or deduct from your monthly family budget.
Using your Equity
Here is an example of how you can use your equity on your current home so that you can purchase an investment property.
If you have a home that is worth $800,000 and you owe $250,000 on your home loan you have $550,000 in equity. If you use $180,000 of your equity to purchase a property worth $450,000 for investment purposes you are using that equity instead of needing to pay a deposit. So you now have two homes worth $1.25million and you have borrowed $700,000.
There are specific rules issued by The Reserve Bank of NZ that impact these calculations and they changed on 1 Jan 2018. Best practice is talk to your adviser before considering investing to ensure you know what is possible in your circumstances.
Investment Property Lending Specialists
The best way to get advice on your options is through an investment property lending specialist. We can come and visit you at your home at a time that suits you, or you can visit our Auckland office. We can also discuss your investment property loans over Skype.
How can rental property loan specialists help?
They can share with you their expertise through their up-to-date knowledge on investment property in the area that interests you.They can help to review your financial situation and find the best home loans for your project.
Explain to you the range of home loans available to you for property investment.
They can also advise you on the loan structure and your options on repayments.
They have a good local knowledge of lawyers, accountants, property managers etc.
Should you keep all your loans with one lender?
By keeping all your loans with just one lender you can get better rates than having them spread around. On the other hand this is not always the best idea: working with two banks can keep them competitive and protect the home from business fluctuations. There are a few things to consider here, depending on your past situation and what your plans are.
Your Home Loan Options when Investing in Property
Similar to when you took out a home loan you are able to structure the loan for your investment property to one that best suits you from the rate of interest and whether it is set as a floating or fixed rate. You may also want to consider options such as revolving credit loans or offset rates of interest.
What are the Loan Options?
If you already own a home you are probably aware of fixed, floating and split rate mortgages, split being a combination of fixed and floating.
Why take out a Split Home Loan?
A split home loan is used by property investors to spread the risk of their investment and to gain the benefits of floating and fixed rates of interest. If you have part of your loan in a floating interest rate it enables you to make lump sum payments. You can also have your loan spread over a short term interest rate and the rest over a longer fixed term when the market is good and interest rates are favorable to you.
Revolving credit allows you to combine your home loan with your everyday banking with everything in one account. You pay your salary into your account and this reduces what you owe on your loan. It is a great product for investors that want to use the equity from their property and put this towards improvements as well as other property related expenses. There are no set repayments on a revolving credit loan and your account balance must stay within the set parameters agreed when taking out the loan deal.
Benefits of an Offset Loan
An offset loan gives you the choice to offset your balance of your savings account against that of your floating home loan. You only pay the interest on the difference and this could reduce the amount of interest you have to pay on your home loan and save you thousands as well as cutting years off the length of the loan.
Some of the features of this type of account are that you make everyday transactions as usual but the more you pay into the account and the longer those funds stay there the less interest you have to pay on your investment property loan.
What is the Difference between an Offset Loan and Revolving Credit?
The benefits to both are very similar, the major difference being that with the offset loan you have separate accounts for your loan, savings and everyday transactions although they can be linked together to reduce your interest repayments. With a revolving credit loan your loan and everyday transactions are combined together into one account. Deciding which one is the best option for you comes down to whether you prefer all your financial options together in one account or into separate accounts. Talking to your mortgage broker or financial advisor can help you to discover which one of these is the best option.
You need to keep in mind that the ownership structures your lawyer or accountant recommends can impact on your flexibility to use offset loans. Ensure the mortgage adviser is part of these discussions at all times.
When taking out a rental property loan it is important to get the best financial advice from your financial advisor or mortgage broker. He can give you the advice and answers to your questions directly while it is equally important to do your own research into what you need and not to borrow more than you can afford.
Contact My Money
Address: 50 Remuera Road, Remuera
Phone: 09 377 4433