Thinking about buying an investment property? As a current or former Australian Defence Force member, you have access to investment loan options from banks and lenders across Australia that can help you step into the property market with confidence.
Variable rate investment loans offer flexibility that many Defence personnel find appealing, especially when building an investment property portfolio. Let's explore what makes these loans work and how they might fit your property investment strategy.
Understanding Variable Interest Rates
A variable interest rate moves up and down with market conditions. Unlike fixed interest rates that stay the same for a set period, variable rates change when lenders adjust their rates. This means your loan repayments can increase or decrease over time.
For investment properties, variable rates often come with useful features:
• Offset accounts to reduce interest charges
• Redraw facilities for accessing extra payments
• The ability to make additional repayments without penalties
• Interest rate discounts for larger loan amounts
Investment Loan Application Process
Applying for an investment loan involves several steps that Defence members should understand before starting their property search.
The application process typically requires:
• Recent payslips and bank statements
• Tax returns from the past two years
• Details about the property you want to purchase
• Information about your existing debts and expenses
• Proof of your deposit and purchasing costs
Lenders will assess your borrowing capacity based on your income, expenses, and the rental yield potential of your investment property. They'll also consider your loan to value ratio (LVR) when determining if you need lenders mortgage insurance (LMI).
Ready to get started?
Book a chat with a Finance & Mortgage Brokers at Defence Loans today.
Property Types and Investment Considerations
When buying a rental property, you can choose from various property types. Each has different considerations for your investment loan:
Apartments and townhouses often have lower entry costs but may include strata fees. Stand alone dwellings typically offer more capital growth potential but require higher loan amounts.
Research property markets carefully before committing. Consider factors like:
• Rental demand in the area
• Potential for capital growth
• Proximity to transport and amenities
• Local employment opportunities
Calculating Investment Loan Repayments
Calculating investment loan repayments helps you understand the ongoing costs of your property investment. With variable rates, your repayments will change when the interest rate moves.
Most lenders offer online calculators, but remember to factor in:
• Property management fees
• Council rates and insurance
• Maintenance and repairs
• Vacancy periods between tenants
Investment Loan Interest Rate Benefits
Investment loan interest rates are generally higher than owner-occupier rates, but they come with tax advantages. Interest payments on investment property loans are typically tax-deductible, which can improve your overall return.
Negative gearing allows you to claim tax deductions when your property expenses exceed rental income. This strategy can be particularly valuable for Defence members in higher tax brackets.
Property Investment Loan Features
Variable rate investment loans often include features that can help manage your property investment portfolio:
Offset accounts link to your loan and reduce interest charges on the amount you hold in the account.
Redraw facilities let you access extra repayments you've made, providing flexibility for property maintenance or purchasing additional properties.
Interest-only payment options can improve cash flow in the early years of ownership, though you'll pay more interest over the loan term.
Loan to Value Ratios and LMI
Most lenders require a deposit of at least 20% for investment properties. If your deposit is smaller, you'll typically need to pay lenders mortgage insurance (LMI), which protects the lender if you can't meet your repayments.
Some Defence members may have access to LMI waivers or reduced deposit requirements through specialist lenders who understand military careers and postings.
First Investment Property Considerations
Buying your first investment property involves additional costs beyond the property price:
• Stamp duty (varies by state)
• Legal and conveyancing fees
• Building and pest inspections
• Loan application and valuation fees
Budget for these costs early in your planning process. Some states offer stamp duty concessions for first-time investors or Defence personnel.
Building Your Investment Strategy
A solid property investment strategy considers your long-term financial goals. Variable rate loans offer flexibility to adapt as your circumstances change, which suits the mobile nature of Defence careers.
Consider how property investment fits with your other financial commitments and retirement planning. Many Defence members find property investment complements their superannuation savings effectively.
Variable rate investment loans provide the flexibility many Defence personnel need when building wealth through property. Understanding how these loans work, their features, and associated costs helps you make informed decisions about your investment property portfolio.
Call one of our team or book an appointment at a time that works for you to discuss your investment loan options and find the right solution for your property investment goals.
