Investing in Property
Investing in property in Australia is a popular long-term strategy for anyone looking to grow their personal wealth. While many first-time investors may feel intimidated by the complexities of the stock exchange, or the unpredictability of the cryptocurrency market, buying a house seems a lot safer and a lot more familiar. You don’t need a degree in finance or the expertise of a stockbroker. All you need is a deposit, a basic understanding of how property investment works and the right finance solution. And with the Reserve Bank of Australia slashing the official cash rate to unprecedented lows, a property investment mortgage could be more affordable than you think. So, if you’re wondering whether property investment in Queensland is a viable option, contact the experienced team of brokers at Borro for some tailored advice.
Investing in Property in Australia
Australians have always placed a high value on investing in property. But owning an investment property is no longer a financial goal that is limited to older and wealthier demographics. As of January 2021, the latest statistics show that around 20% of Australian households own an investment property. And of those investors, almost 40% are between the ages of 30 and 50.
But regardless of whether you’re planning to buy your very first investment property or you’ve decided to expand on an existing portfolio, it’s critical that you get your finance structure right from the very beginning. Getting things right at the start will ensure you don’t run into any unnecessary complications in the future. At Borro, we’ll work closely with both you and your accountant, gaining a thorough understanding of your financial situation so that we can then help you achieve the correct structure for your investment property finance loan.
What are the Benefits of Using a Mortgage Broker in Queensland?
When you’re investing in property in Australia, you want to make sure that your mortgage is competitive, with the right loan features and flexibility to suit your future goals. And while it is possible to obtain a loan for an investment property by approaching a lender directly, doing so severely restricts your choices. But when you use a skilled mortgage broker in Queensland, you get:
- Industry experience: A Queensland mortgage broker can provide you with a wealth of industry experience, something that even long-time investors can benefit greatly from. At Borro, we can explain which loan products have been most beneficial for our customers buying investment properties in recent years. We can also advise which lenders are most likely to view your application in a favourable light (significantly increasing your chances of securing an investment property loan).
- Expansive lending panel: The brokers at Borro have access to a lending panel composed of over 50 different lenders. This allows us to compare a wide range of investment property loans, analysing each one for compatibility with your finance needs. By starting with an expansive lending panel, we’ll have far more loan products to choose from when it comes to finding the best option to suit you.
- Free and unbiased advice: At Borro, we’re committed to acting in the best interests of our customers at all times. Not only do we feel this is the best way to do business (since a happy customer is more likely to be a repeat customer!), but as a mortgage broker in Queensland, we’re also governed by ‘Best Interests Duty’ legislation. This means you can trust us to always offer free and unbiased advice.
- A tailored finance solution: Investment property purchases are generally more complex than buying a typical family home. So, a “one-size-fits-all” mortgage is unlikely to meet all your needs. This is why the team at Borro work to deliver investors a tailored finance solution. We’ll negotiate directly with the lender to ensure you get the right kind of finance to support your long-term investment goals.
Finding a Deposit for a Property Investment Mortgage
You might be planning to use cash from your savings as your investment property deposit. However, it may also be possible to leverage the equity in your existing properties. But what exactly is equity, and how much equity do you need to secure an investment property mortgage?
What is Equity?
Put simply, equity is the value of a property that you own outright (in other words, the portion that isn’t still covered by your home loan). There’s a good chance you may have enough equity to put towards an investment property purchase if:
- You’ve been making added repayments to your mortgage.
- You’ve had your mortgage for a few years now.
- Property values in your area have increased significantly since you first bought your home.
To figure out how much equity you have in your current property, you just need to deduct the balance of your existing mortgage from the total property value. For instance, if you have a $350,000 home loan balance, and your property has been valued at $650,000, you would have $300,000 of equity (650,000 – 350,000 = 300,000). But there are a few important things to keep in mind if you’re planning to use equity as a deposit for property investment in Queensland. The first is that the value of your current property will need to be determined by a lender-approved property valuer (who may value the property slightly differently from a local real estate agent). Secondly, there is a difference between your total equity and your usable equity. Just because you may have $300,000 worth of equity, this doesn’t mean you have the equivalent of a $300,000 deposit.
How Much Equity Do You Need to Secure a Property Investment Mortgage?
You probably won’t be able to use the entire value of your equity as a deposit for an investment property purchase. Instead, most lenders will take into consideration what they term ‘usable equity’. To calculate your usable equity, start with the current value of your property and then multiply this by 80%. If you then subtract the remaining balance of your mortgage, you’ll have the usable equity value.
For example, if we again start with a property value of $650,000, we’d multiply this by 80%, which equals $520,000. If we then deduct the home loan balance of $350,000, we have usable equity of $170,000. To avoid paying Lenders Mortgage Insurance on your investment property loan, you’ll generally need a deposit of at least 20%. So, with usable equity of $170,000, you’d potentially have a big enough deposit to purchase an investment property worth up to $850,000.
However, as with any lender finance, you’ll need to consider more than just the size of your deposit. For an accurate assessment of your investment property borrowing potential, contact the team at Borro today. We’ll look at structuring your loan so that your properties are not cross-collateralised (if possible), as this will give you greater flexibility in the future. This also leaves you with the option to use different lenders, ensuring you get the most suitable loan product with the most competitive rate.
How Can You Choose the Right Structure for a Property Investment Mortgage?
When purchasing an investment property, it’s important to determine whether you want a loan with Principal and Interest repayments or Interest-Only repayments. An Interest-Only loan is usually recommended by accountants as this will enable you to maximise your tax-deductible debt. However, an Interest-Only loan will usually incur a higher interest rate, and while you’re making Interest-Only repayments, your Principal Balance is not reducing. Our expert investment property brokers can consult with your accountant to determine which solution will be most suitable for your situation.
Once we know the ideal structure and repayment type, we can get to work finding you the best possible finance deal. We’ll compare loan products from our panel of over 50 lenders and reach out to individual lenders so that we can negotiate the lowest possible rate.
What Should You Look for When Considering Property Investment in Queensland?
To get the most out of property investment in Queensland, it’s important to start with some simple research. Considering relevant details such as the property location, rental yield, vacancy rates and property amenities will enable you to more accurately determine whether a property will deliver the long-term benefits you’re hoping to achieve.
- Finding the right location: When considering rental property locations, don’t forget to look at the area through the eyes of a potential renter. For maximum appeal, look for properties with access to public transport and close to desirable facilities (such as parks or shopping centres). It’s also important to research the demographic of the suburb – if 75% of the population are families with school-aged children, then 3-bedroom houses in proximity to local schools will be more desirable than a studio apartment on the main street.
- Calculate rental yield: Rental yield is how much money you can expect to make from your investment property over the course of a year. A rental yield of around 5% is considered by many investors to be a safe and stable rate of return. To calculate the gross rental yield of a property, divide the total rent for the year by the value of the property and then multiply this by 100. For example, consider a property worth $400,000 that you can rent out for $400 per week ($20,800 per year). 20,800 divided by 400,000 and then multiplied by 100 would give you a gross rental yield of 5.2%.
- Research vacancy rates: A suburbs vacancy rate describes how many rental properties are currently sitting empty. If a suburb has a low vacancy rate, it’s a good indication that rental properties in the area are in high demand and unlikely to remain unoccupied for long. This is important because every week an investment property sits vacant is a week of lost income for the investor. Use online real estate search tools to assess suburb vacancy rates or talk to a local property manager.
- Look for the right features: Certain features could make a rental property more (or less) desirable to prospective tenants. A property that is low maintenance, has off-street parking, plenty of natural light and a second bathroom will be far more appealing to most tenants than a similar sized property that is high maintenance, located on a busy main road or that has nowhere to park. Once again, it’s a good idea to consult with a local property manager, as they can give specific advice on what features will be most appealing to prospective tenants.
To discuss your investment property goals with a Borro Finance Specialist, get in contact today via Ph: 1300 1 BORRO or email: firstname.lastname@example.org.
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At Borro, we have a number of buying and selling house calculators that can give you estimates of how much you can borrow, how much you’ll need for a deposit, and comparisons between loans.
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Frequently Asked Questions For Refinancing Your Home Loan
At Borro we understand that homeowners choose to refinance their mortgage for different reasons. It might be to consolidate debt, purchase an investment property, renovate your existing home, or maybe you are simply looking for a lower interest rate. No matter the reason we can help you grow a healthier financial future by refinancing home loan.
The ACCC Home Loan Price Inquiry report recommended that lenders prompt borrowers to consider refinancing every 3 years. However, we believe that a reassessment should be carried out once a year for maximum benefit. This doesn’t mean that you need to do a complete refinance every 12 months. But a reassessment completed by an experienced mortgage broker will tell you if your home loan is still offering a competitive interest rate or whether you would be better off refinancing. Additionally, it’s important to do a home loan reassessment whenever you’re approaching the end of a fixed interest rate period. This is because most lenders will automatically roll a home loan over to their standard variable rate once the fixed rate term has concluded (which may be significantly higher than your current low fixed rate).
Many homeowners are wondering if now is a good time to refinance home loans in Australia. For most, the answer will be “yes” if you’ve had your current home loan for 2 years or more. The official RBA cash rate has been sitting at just 0.10% for over 7 months, which has resulted in lenders dropping their interest rates to remain competitive. How far have rates dropped? Well, the average variable home loan rate in Australia is now 106 basis points lower than it was in June 2019. While most interest rates in 2018/2019 began with a 4, many fixed interest rates now start with a 2, and some lenders are offering interest rates as low as 1.99%!
Meanwhile, property prices in South-East Queensland have been steadily rising as interstate migration increases demand in the local property market. This means that many homeowners will now have more equity, which puts them in a stronger refinancing position.
If you’re considering refinancing your home loan, start by talking to a mortgage broker at Borro. That will allow you to explain what you hope to achieve from your refinance and get expert answers to any questions that you may have. We can then assess your current home loan and compare it with a wide range of mortgage products from a diverse panel of lenders. Once we’ve identified which home loan product will present you with the best possible results, we can then get started on your refinance application.
The process of refinancing is similar to what you would have experienced when you applied for your original home loan. The new lender will want to see evidence of your current income and living expenses, as well as recent statements from your current mortgage lender. They’ll also arrange for an evaluation of your property to determine how much equity you currently have. The good thing about refinancing is that borrowers are often in a stronger financial position than when they were first home buyers. And the stronger your financial position, the easier it is for us to negotiate better loan terms.
Once the refinance home loan has been approved, the new lender will arrange for your existing home loan to be repaid in full. You’ll then start making repayments to the new lender.
The length of time it takes to process a home loan refinance will vary depending on a range of variables, including which lender you’ve chosen and how complex your application is. Typically, to refinance a home loan in QLD will take around 4-6 weeks from start to finish. However, thanks to the ongoing ramifications of COVID (and the surge in refinance applications), most refinance applications are currently taking slightly longer to finalise (averaging around 6-8 weeks).
Some borrowers hold off on refinancing because they’re happy with their current lender and don’t like the idea of having to switch. The good news is refinancing doesn’t necessarily mean changing lenders. We can approach your current lender about refinancing your existing home loan to a product with a more competitive interest rate or with more suitable loan features. Many lenders will readily allow existing customers to refinance because it’s more economical for them to lower your rate than lose your business altogether.
Many lenders are currently offering refinance cashback deals of up to $3,000 to refinancing homeowners. For some borrowers, this will not only cover the costs associated with refinancing but also leave them with a bit of leftover cash. However, before refinancing for a cashback deal, it’s important to assess whether the loan product on offer is right for you. There’s not much point in refinancing if the loan isn’t competitive or won’t support your long term financial goals. To ensure a cashback refinance deal will be beneficial, talk to one of the experienced brokers at Borro.
According to a 2020 study by CoreData, almost 1 in 2 homeowners don’t think banks are acting in their best interests. Additionally, over half of those surveyed were sceptical about whether a bank would provide them with unbiased financial advice. Considering this is how so many homeowners feel, it’s easy to see why some may be hesitant to refinance.
Fortunately, the mortgage brokers at Borro can help. Our brokers are governed by legislation known as ‘Best Interests Duty’, which means that we are legally required to always act in the best interests of our customers. We can provide you with expert advice that is totally unbiased and tailored to suit your current financial situation. So, when you work with a broker from Borro, you can trust that you’re getting the best refinance deal to suit your needs.
The experienced team of mortgage brokers at Borro can help you successfully restructure your finances, ensuring that when you refinance, you’ll always come out in front and achieve great savings. If you’re ready to start the process of finding a better deal, then contact us today on Ph: 1300 1 BORRO or email: email@example.com.
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