Hi all,
i’m about to purchase an IP and not sure about the loan. i have read about equity home loan and equity line of credit. Im not sure which to use….can some1 tell me which one investors tend to use and why?
Thanks
Normally I would suggest to use a straight forward interest only loan on your IP.
Equity loans can be used on your home loan. They allow you flexibility in accessing funds, eg for deposits, closing costs, etc.
However you have to be careful. If they are not set up right, you cannot tax deduct the interest, even so you are using the money for an investment purpose.
You want to talk to a good MB about this. Also talk to a good accountant. They will advise you on the best structure for your investment needs. You have to tell them if you just want to buy one (or a few) investment properties, or if you want to improve/develop properties. Different strategies require different approaches.
One option is to split your homeloan into two sections. The existing loan and one with the rest of the equity for investing purposes.
Now any income (private or IP) you have, you pay off the home loan part because you cannot tax deduct the interest.
Good Luck
As Bridge has pointed out an IP loan would normally be an interest only loan however the most important thing to do prior to deciding the loan type is the structure.
We spend a lot of time working with client ensuring their structure is correct prior to them getting anywhere near committing to a IP purchase.
A little bit of time checking over your existing loan and the entity you intend to use to purchase the property will save you 000’s in the long run.
Cheers
Richard Taylor
Residential & Commercial Finance Broker.
Licensed Financial Planner. Ph: 07 3720 1888
[email protected]
Looking for life cover – We Guarantee to beat any quote you have in writing.Richard Taylor | Australia's leading private lender
Why is it normally an interest only loan? Is that purely to lower the repayments?
If it is P & I then won’t you grow more equity?
PI will grow equity quicker, but it would be more efficient to pay any extra funds off your home loan as this is not deductible.
Terryw
Discover Home Loans
[email protected]
Send an email to get my newsletter.Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
or use it for further IP if you are lucky enough not to have a home loan
I think you’ll find that an equity home loan and and equity line of credit are the same thing, just called different names by different people.
Neil and Kate Gorman
Mortgage Broker
Mortgage Choice – there’s only one choice
tel: 0430 500 848
e-mail: [email protected]If you are buying an IP you will normally have a deposit saved or use equity in your home for the deposit and borrow ideally no more than 80% against the value of the IP to avoid paying Lenders Mortgage Insurance.
The type of loan product used is not as important as getting the basics right. Keep any borrowing for the IP separate from your own personal borrowing.
Seek professional advice before you start as there are many issues to be considered.Philip Limbert
APM Finance Pty Ltd
[email protected]
0433 007 105
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