Interest only payments in advance could see you on the front foot, securing a low rate and tax savings.
No doubt if you are a property investor, you have noticed the recent interest rate increases on your lending – particularly if you have interest only repayment terms.
In March this year, The Australian Prudential Regulation Authority (APRA) clamped down on interest-only loans in an attempt to slow the property market. APRA’s restrictions have limited new interest-only loan approvals to 30 per cent of overall residential mortgages. These regulations have also stimulated a subsequent increase in investment interest rates.
What does this mean for my investment loans?
With the housing market booming, particularly the investment property market, these new restrictions mean rising rates and tighter bank policies around new loan approvals. So how can you navigate these changes wisely? It begins by finding the right fit for your loan purpose.
If you own an investment property, your loan will fall into one of two basic loan categories:
1. Principle and Interest Repayments
2. Interest Only Repayments
The benefits of interest only facilities are lower monthly repayments and the ability to maximise tax deductions through negative gearing. However, interest only loans are not available from every lender and are increasing in cost relative to principle and interest reductions, as we are seeing with the new APRA restrictions. It is also important to remember that loans need to be paid off at some point, so whilst interest only loans are attractive, they are not for everyone.
Repayment types are only one feature of a home or investment loan. Some other things to consider are fixed or variable interest rates, whether you are a full- or lo-doc applicant, want a basic no-frills loan or one will all the bells and whistles. There is a lot to consider throughout the process, and each choice will change your rate and repayments.
But don’t fret – TMFG are here to simplify it for you.
Do you want to secure a low interest rate ahead of more potential rate spikes and restrictions?
Do you want to take advantage of this financial year by capitalising your tax deductions?
Then it is time to consider interest only in advance.
Why Interest Only in Advance?
If you are a property investor, interest only in advance is a facility that allows you to pre-pay interest 12 months in advance in order to gain tax benefits this financial year. Interest only in advance is available on a one-year fixed rate term, enabling you to make a one-off tax deduction. This gives you back financial freedom, without the burden of monthly interest repayments.
If this product interests you, you need to act now as June is too late.
Pay in May, save next financial year!
As a residential property investor or home owner, there are still many competitive lending products available from many different lenders. The trick is fitting the right loan to your personal circumstances – that is where we come in. If you have noticed a sharp rise in interest rates or haven’t reviewed your lending recently, why not give us a call?
An enquiry doesn’t cost you a cent, but it sure saves you plenty!