Are you ready to invest in your future? A real estate investment loan could help you to take care of your future if you know what you are doing. If you are looking to buy your first home or perhaps buy a piece of property to help supplement your future income, a real estate purchase can be a wise investment.

After you have chosen a piece of property that you are interested in, the next step is usually the hardest one. This step involves procuring the loan itself. Buying a piece of real estate, including a new home, can be very expensive and the process can take a long time to complete. A real estate investment loan is not impossible to get if you avoid some simple mistakes that many people make.

The most important way to avoid higher costs associated with investment loans is to have a good credit score. Just because someone has little or no credit history does not equate to a good credit score. Although you may not have bad items on your credit report, financial institutions are not ready to lend you money to buy or invest in such a large item. If you have the right credit score, you can save yourself from problems that come with the investment loan. Higher interest rates may be one of the problems to deal with when you have little or no credit history.

Research the possible companies that you are interested in seeking financial help from. With the increase in problems with the economy, many banks are very careful who they are lending money to and the requirements for qualifying for an investment loan have gone up. To help get a loan, you should have a steady income for the last two years and have not been overly late on your payments to creditors. Just making one late payment can cause you to be denied for the loan you want.

If you have reached a point where your credit score may not be as high as you would like, you can still qualify for a loan if you do some work to find the companies that are available to help individuals in your situation. Although the number of companies may have declined that are willing to lend money to people with less than stellar credit, the companies are still available for those who look. Using the real estate that you are interested in can help to provide collateral for the investment loan.

To reduce your investment loan costs, take any extra money you may have to help lower the interest rates on your loan. Lowering the amount being financed can save you a great deal of money that a real estate investment loan can cost you over the long run. Extra money can also help you to buy down your points on the interest rate. You can rebuild your credit, plan for your future, and still make money by making better choices and doing a little extra work to get the best possible investment loan available.

Buying a new home can be very stressful especially if you do not have the right tools to help you get through the process. A mortgage calculator is one of these tools that can help you to understand how much exactly a home mortgage will cost you each month and over the long run.

Visiting with your financial institution is the first thing you should do to determine what kind of financial power you have. If you have had a long relationship with a particular bank, you may be able to take advantage of this fact when looking to borrow money for your home. Although with the current financial situation the market and the economy is in, lenders are not as quickly to lend money to people with credit problems.

If you get a mortgage calculator, you can input the numbers the bank provides you with and you can determine how much you might have to pay. With some changes to your monthly payments, the calculator can reveal how the payments might be change. Every calculator can provide you with different answers depending on what other factors might be available in the mortgage calculator.

So many fees can be added to your mortgage from mortgage insurance, interest point penalties, and other fees. A calculator can help you to understand interest rates, ARM rates, fixed rates, and other interests. Different perks are available for different situations and you can learn more about them on the Internet. The mortgage calculator can help you to verify the information that a financial institution is providing to you.

Consider what a mortgage calculator does to make sure that the one you are looking to use will answer the questions you have. Some calculators will require different amounts of information in order to tell you what you need to know. The amount of the cost for the home, the down payment, and the interest rate are just a few of the things you may need to know. The mortgage calculator can allow you to play around with the inputs so you can determine how much a monthly payment may cost you.

Mortgage calculators have many uses and you should strongly consider the benefits a calculator can provide. The calculator does not have to be something as simple as one that you hold in your hand. Most of the best calculators are not available online and from any computer that has Internet access. You can even create your own mortgage calculator on spreadsheet software on your own system. This can allow you to customize what you want the calculator to help you with.

Mortgage calculators can help you to buy your home if you use this tool the right way. Be sure you read up on the calculator because if you input the wrong information, you will get bad advice back from the calculator. This type of mortgage calculator will not only help you with a new home purchase but can provide you with a way to determine if you might wish to refinance your current mortgage to get more money for other things.

You have gone through a lot of trouble to get your original mortgage and you may wonder when or why anyone would want to consider mortgage refinance on his or her home. Many reasons could come up that would allow people to consider refinancing.

When you mortgage your home, the loan can be from twenty-five to forty years in length. During this time, interest rates can go up or down depending on a large number of other factors including the housing market. When large demands exist for homes, the rates are usually higher. When the market has too many homes, the rates can be lower to provide an incentive for people to buy a home. Depending on what was going on when you bought your home, your interest rates might be higher or lower than they currently are.

If you had bad credit when you first purchased your home, consider the mortgage refinance option to take advantage of how your credit may have changed over the years since the initial loan was made. Perhaps you want to lower your monthly payments. A mortgage refinance will allow you to do this because of the equity you may have built up as well. Many people want to take the mortgage refinance option to get extra money back to do home improvements on the home. The interest on this type of loan is very low and the improvement will increase the value of your home. It is a win-win situation.

When is a good time to refinance your mortgage? Check out what the interest rate was at the time you made the original loan. The rule of thumbs is that as long as the interest rate is different by at least two percent, you can consider this a good time to get the mortgage refinance option implemented. Remember that if your credit was bad at one time and you have worked to rebuild it, you may still be able to take advantage of a lower interest rate that was not available to you at that time. Ask you banker what possibilities you might have for a home mortgage. Most bankers will look for you at no charge.

If you are considering using the equity that you have built up on your home and the interest rates have dropped (not necessarily the suggested two percent), you can take extra advantage and get money back from your home and use the lower interest rates that a mortgage refinance option provides over a regular personal loan.

The other reason to take the mortgage refinance option is to get out of an adjusted rate mortgage and into a fixed rate home loan. Many people have found the adjustable mortgage rates to be a bad idea when the rates go much higher than they ever expected them too. A fixed mortgage rate will at least provide you with a solid knowledge of what you will have to pay today and in the future on your loan. Consider these reasons and you may find the time has come for you to consider the mortgage refinance option.

One of the most common things that a real estate will tell you that he hears is that although the first home buyer is interested in buying the home being looked at, he or she often does not have any idea of how to come up with a down payment for the property in question. Do not fool yourself into thinking that coming up with a down payment is as difficult as people think. 

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fMost investors when acquiring an investment property or share portfolio will take a standard investment loan which includes an interest only component. When applying for their investment loan they do not look much beyond the interest only factor. Most accountants and financial planners will recommend an investment loan be taken on an interest only basis because by doing so an investor can claim the same amount of interest each year (the principal amount of the investment loan is not reducing) and save his personal income for a further investment in the future.

 

Recent tax rulings in Australia (both Private and Public) have confirmed that the ATO will allow for capitalised interest to be deducted when it is accruing on an investment loan or line of credit and being utilised to meet the shortfall in interest on an investment loan or the costs of maintenance and the like on an investment property.

 

The ATO had an issue in the past where some borrowers structured their investment loan as a package with their home loan debt and under the terms of the investment loan were able to capitalise the interest repayments on the investment loan provided they made an equivalent payment to the reduction of their home loan debt. This enable borrowers to repay their non-deductible home loan very quickly while at the same time enjoy additional tax benefits because of the increased interest accruing on their investment loan. The High Court of Australia eventually decided against this product and held that it was caught by Part IVA of the Income Tax and Assessment Act.

 

Subsequently other loan products have been developed on which Private Tax Rulings have issued which allow the taxpayer to claim the capitalised interest where he or she has either:

1. claimed the shortfall between the rental income received on an investment property and the costs associated with an income-producing investment including the interest paid on an investment loan. The ATO does not expect a taxpayer to use personal income to subsidise the costs of an investment loan.

OR

1. claimed the capitalised interest on an investment loan or investment line of credit where the terms of the investment loan or line of credit allow interest to capitalise because the investment loan secured against a different property in which the investor has sufficient equity to allow for the capitalisation.

 

Any investor who is considering an investment loan should ensure that the structure of the investment loan and any other personal debt is such that it will allow him to

 

1. Save his personal income for personal use (be it a holiday or perhaps the wiser move of making greater loan repayments to his non-deductible home loan debt so this is paid off much quicker.
2. By creating greater equity in his home property he is able to access this equity to arrange an investment loan for further investment and capital gains opportunities.
3. Increase his tax deductible interest which in turn will reduce the actual tax payable on his personal income.

Structure your investment loan properly and you will build your wealth much faster.

fffMore people these days are look to take out an Investment Loan to buy investment property or shares. Here we look at some of the things you need to consider when you borrow to invest.

Your priority should be your Home Mortgage – is this really the case?

Your home is a big investment and it's costing you a lot in interest. Most financial planners will recommend that borrowers should aim to pay down their non—deductible home loan debt before they repay their home loan debt. This does not mean that you should necessarily repay your home loan in full before looking at investment opportunities. Rather than letting good investment possibilities pass you by it is better to utilise the equity you have created in your home by borrowing against it (by creating a separate investment loan account) to provide the balance of money required to settle your investment purchase. Certainly while ever you have only a home loan you should apply as much of your income as possible to repay this faster and create equity which you can use in the future to launch yourself into an investment.

Investment Loan for investment property

If you've reduced or paid off the Mortgage on your home, you might consider borrowing against the home security to buy an investment property. You can borrow up to 80% without the additional cost of mortgage insurance against your home. Some of this investment loan  borrowing can go towards the purchase price of an investment property with some of it being put aside to help with servicing the interest on your investment loan (rather than paying any interest shortfall on the investment loan with your own personal income.) By doing this more of your personal income can be applied to making additional repayments on your home loan debt. An Investment Loan differs from a Home Loan in a couple of key ways.

Investment Loans & Home Loans - the differences

In contrast to a home loan, costs associated with an investment loan are tax deductible (eg interest, repairs, rates, depreciation, etc). Of course, any rental income will generally increase your taxable income.

Capital gain on an investment property is taxable

There is another key way in which investment properties differ from residential homes. While the capital gain on your home isn't taxed, any appreciation in the value of an investment property will be.

Negative gearing - short-term loss for long-term gain

If you earn less from an investment property than it's costing you, you are “negatively geared”. While everyone would prefer their investments to be positively geared, tax laws in Australia recognize that if investment in residential property and shares is to be encouraged investors must be able to claim back any costs (over and above the income that the investment property generates) as a deduction against their personal income. For this reason investors are generally willing to accept a short-term loss in the hope of a capital gain later. It is generally accepted that the residential market in Australia generates a lower return than some other investments but history shows that it also provides a greater opportunity for capital gains.

fIf you are in the market for a home loan or an investment mortgage it is worth talking to a mortgage broker. By utilising the services of a mortgage broker you are much more likely to access the best mortgage deals in the market at any given time. Most mortgage brokers are accredited with a wide range of lenders and are updated on a daily basis as to what products are on offer. Utilising the mortgage broker doesn’t just save you time it will save you money and ensure that you will be in the picture on the best mortgage deals available.

 

Surveys show that borrowers who use the services of a good mortgage broker are much more likely to get the best mortgage deals going. Many borrowers only approach their own bank for a loan when they are looking to purchase property but more often than not these lenders promote those loans that will provide the bigger profit to the bank as opposed to giving you a choice from a range of their best mortgage deals – giving you cost savings rather than higher margins to the bank.

 

A mortgage broker will also know which lenders have special offers on, and this in itself will help you identify the best mortgage deals going and from those decide upon the best mortgage deal for you! Quite often individual lenders will promote a particular loan and if they are after increased market share then they will often waive establishment fees or offer a discount in the first year of the loan. In researching the best mortgage deals these cost savings can have a significant impact on cash flow especially in the first year of the loan when many buyers (particularly first home buyers) are budgeting carefully. Just make sure that the best mortgage deals you choose from are not just the best mortgage deals in the short term but also suit your long term requirements.

 

Often a standard variable rate mortgage may suit – you don’t need too many bells and whistles but just make sure when selecting from what you or your broker has determined as the best mortgage deals that do give you flexibility in the long term.

These days though it is fair to say that most lenders are happy to accommodate you if you wish to vary your mortgage in some way. There will be a cost generally if you want to add a line of credit or fix your loan or perhaps include an offset account – but at elast you are able to change the terms to ensure that the best mortgage deal for you stays that way over the life of a loan.

 

Exit costs have reduced over the past few years. This means that even if your lender is not accommodating and at some stage you feel that your loan is no longer the best of the mortgage deals out there, well, you can still refinance at relatively low costs.

 

At any given time there are many good mortgage deals in the market – to hone in on the best mortgage deals is the key, and using a mortgage broker will definitely help in this exercise.

fMost Australian investors take out an investment loan when they are purchasing investment property. They are less likely to take out an investment loan when they purchase shares because obtaining funding for most share purchases is quite difficult.

 

Whatever the circumstance, if you are an in the investor property market then you should ensure that any investment loan that you organise works to improve the yield on your investment property over the term of the investment. A good well-structured investment loan can make a sound investment even better.

 

As a general rule most property investors have either

1. an existing home loan which they have paid down to a point where there is unutilised equity in their home property over which they can borrow to purchase an investment property or share portfolio. In addition they will take out an investment loan against the new investment acquisition.

Or

1. an existing home loan plus sufficient savings which they apply towards the investment property. Again the investor will take out an investment loan and utilise the savings to provide the balance of the purchase price.

 

In both these scenarios the investor can structure their investment loan and home loan to ensure a better outcome for them.

 

Firstly if as an investor you have a home loan then any savings you have should be applied in the first instance to reduce the home loan debt. Before doing so ensure that you have a redraw feature attached to your loan. Most home loans and investment loans these days do have a redraw feature but if yours does not, then request it of your lender, or refinance. Taken you have redraw your next step is to create a separate investment loan account – it is important under ATO rules not to mix home and investment loan debt, if you do mix your borrowings the ATO will require any additional repayments to be apportioned between your investment loan and home loan – it is much more tax efficient for you to have any extra funds applied to the reduction of your non-deductible home loan debt as opposed to your investment loan where negative benefits can be obtained.

 

Secondly, if you already have a home loan but have paid this down to a level that allows you to re-borrow funds for investment then again the best structure for you will be:

1. to have your existing home loan with Lender A
2. to add an investment line of credit under a separate account that takes the borrowing on your home property to 80% of its value. The investment line of credit is used to provide funds for:
• the balance of purchase price
• any shortfall between the rental income and interest / costs on the investment loan and property.
• A buffer in case of vacancies – instead of subsidising the investment loan interest from your personal income you can draw on the line of credit to meet the interest due on the investment loan and any other unexpected costs – there is no negative impact on your cash flow.
3. to arrange an separate interest only  investment loan with preferably a different lender, Lender B. This is a term loan with the maximum interest only period available.

 

By structuring your investment loan and home loan in this way you will maximise your benefits, build wealth and ensure that along the way you are not suddenly caught short of funds if a vacancy occurs or interest rates increase.

To Mortgage Refinance or not to Mortgage Refinance – that is the question on the minds of many borrowers. 

If you are feeling a little disgruntled about your mortgage rates or if your lender is simply not providing you with the service you desire it may be that you are thinking about a mortgage refinance. The reality today is that while mortgage rates llook attractive for new loans the majority of borrowers who are with the banks are paying the standard variable rate which is currently sitting at around 5.80% p.a. This could be you. It would seem to be a sensible move to weigh up your mortgage refinance options. What do you need to consider in this process?

 

Most borrowers simply jump into a mortgage refinance and are often well down the track before they realise that the move may not be a viable proposition. Before you spend too much time or any money look at the costs involved in your mortgage refinance. If you are dealing with a mortgage broker in the mortgage refinance process and he or she does not ask you to ascertain your exit costs on the existing home loan you have then quite frankly you should look for someone else to take care of your mortgage refinance. Many mortgage brokers only alert you to the costs of a mortgage refinance in so far as they relate to the cost of the new lender. They do not want to make you too aware of the costs that you will incur if you are exiting your existing loan early. As a general rule if you are paying out your mortgage within 5 years of its inception then the mortgage refinance costs will include early penalties.

 

Exit costs on a mortgage refinance will vary depending on whether you are in a variable or fixed rate loan. If you are in a fixed rate loan then you will incur “break costs” which as a rule of thumb equate to the difference between your fixed interest rate to maturity of your fixed period and the rate that the lender can currently reinvest its funds for that same duration. Recently many borrowers have commenced a mortgage refinance process not realising that their break costs are significant because of the dramatic rate reductions we have experienced in Australia over the past 12 months. The amount of these break costs may be such that the amount actually required to complete the mortgage refinance is such that the security value will not support the loan or the loan amount represents say 90% of the value and as a result the borrower incurs additional lenders mortgage insurance costs which can also be quite high.

 

If there are high early repayment penalties on your loan then you need to make sure that the interest rate differential between the existing mortgage and the new loan is such that you will recoup these costs within a 6 month period and thereafter be ahead as a result of your mortgage refinance.

 

Too often borrowers are ill-advised or embark on a mortgage refinance before doing the sums – as a result the interest saving they think the mortgage refinance will deliver is wiped out by the costs of the exercise.

 

Check all your costs first – for both the outgoing and in-coming lender before you proceed down the path of a mortgage refinance. It must be a viable proposition to make the mortgage refinance option a worthwhile exercise.

The reality is that the best mortgage is the one that meets all your requirements in a mortgage loan. These obviously differ from one borrower to the next. For a first home buyer the best mortgage is likely to be a basic variable rate loan with redraw and the option to fix your interest rate. No matter what mortgage you are looking for these are the 2 features which are critical to have as part of your “best mortgage” package. Generally basic variable rate mortgages are priced very competitively – you are not paying a higher interest rate for features that you may have no need for.

 

Some mortgage consultants have pushed the line of credit as being the best mortgage available in the market for those purchasing their own home. The benefit attributed to a line of credit is that it can be an all-in-one style of loan account. You use your line of credit for all your financial transactions. Under this so-called best mortgage deal your salary is credited to the line of credit each month. You use a 55 day interest free credit card to purchase your monthly groceries etc. On the due date for payment on the credit card you draw down against the line of credit to pay off the full outstanding balance on the credit card. In this way your salary is working for you to reduce the interest on your home loan while it remains undrawn. This is because interest is calculated on the daily balance of your loan.

But is a line of credit really the best mortgage for a home buyer? It can certainly reduce the interest but claims by some banks that you can repay your loan faster without making extra repayments is misleading. You may not physically make an extra repayment but the surplus from your salary is exactly the same thing. So be careful if a line of credit is touted to you as the best mortgage for you – it can be a trap in that borrowers fail to make any dent in their mortgage over a long period of time because often there is no minimum monthly principal and interest repayment required. Not the best mortgage after all!

 

If you are an investor with a home loan, then a line of credit may well make for the best mortgage package for you. By having a line of credit in place you are able to draw on this to meet any shortfall on interest or maintenance costs in relation to your investment property. Instead of using your personal income to subsidise or meet these costs you should apply as much as possible of your salary to repay the home loan faster and use the line of credit for all your investment costs. Including a line of credit in any investment loan arrangement is a sound idea and you can be confident that by doing so you will have the best mortgage structure for your needs.

 

The best mortgage is not always the one with the lowest interest rates. You must be careful to check out a product carefully particularly if the interest rate is well below the market. You might initially think the low interest rate makes it the best mortgage for you but if you are not able to fix the rate down the track or there are other limitations that could prove costly in the future then this is not the best mortgage for you.