whether you acquire a domestic loan but also fairness in your domestic property and want to purchase an investment property to build wealth, then it is distinguished to research the investment loan market to effect certain that you apply for an investment loan that really works for you. When you apply for an investment loan, most lenders will simply offer you their standard term investment loan. fairly often they will seek to structure the investment loan so that it is on a principal and interest basis. While ever you acquire domestic loan debt it is much better to acquire an interest only investment loan. This ensures that the repayments you effect on the investment loan are the minimum possible as opposed to including any principal reductions. whether you apply any principal amount that you would otherwise acquire made on a principal and interest investment loan to the repayment of your domestic loan you will repay your domestic loan much faster and save yourself a heap in interest payments. There are also the tax considerations – whether you finish not reduce your investment loan debt then you finish not reduce the amount of deductible interest you can claim each year. Your negative gearing position is maintained as opposed to diminishing each year.
Ideally an investment loan will also include a capitalizing line of credit so that you can acquire a buffer during high interest rate times or when there are unexpected vacancies or costs relating to your investment property. By including a capitalising line of credit within your investment loan you are also in a position where whether you wished or need to you could capitalise the shortfall between the rental income you receive and the outgoings you incur (including the interest on your investment loan). This shortfall is added on to the investment loan instead of being met from your personal income. By not having to subsidise the shortfall in interest on your investment loan you acquire freed up your cash flow. The most efficient way to exercise this freed up cash flow is to apply it to an additional repayment on your domestic loan. You may not realise but whether you were to capitalise a monthly shortfall of interest on your investment loan of say $350 (fairly than pay from your salary) and instead applied that $350 to the repayment of your domestic loan of $150,000 (@ 9.25% over 30 years) then you would repay that domestic loan out in less than half the term (in 14 years and 2 months to be precise) and by doing so save your self nearly $175,000 in interest repayments to the bank.
Many investors when looking for an investment loan finish not properly research the market and accept whatever is offered to them by their bank. This approach can be costly in the long rush. Check out the other investment loan options in the market and watch to a lender who understands your investment needs and can provide you with an investment loan that gives you a lot of flexibility, is priced competitively and defintiel includes a capitalising interest feature.
It is also helpful whether your lender is able to issue separate statements for each investment loan you acquire and your domestic loan. Some mortgage managers also give you the ability to name each account e.g. 16 William St making for easy identification of each investment laon for you, and your accountant at tax time.
Be an astute investor and watch for an investment loan that offers these sort of features as it will succor you reach your wealth building goals much quicker.