hey all as i am new to all this and trying to get into the market of investing in property could someone please inform me on the diffrence to an investment loan and a mortgage are the repayments the same is it all set up the same way i am unsure on the diffrence thanks for your help kev.
Hi Kev,
An investment loan is an Interest only loan (IO),
the repayments are less than a Principle & Interest loan (P&I) (the usual home owners mortgage) because you are only paying the Interest on the loan (so as long as it stays IO the principle debt will remain)
an IO loan is usual for a set period of time (mines 5yrs) at the end of this time it converts to P&I..
most property investors use them because they help free up cash flow which in turn allows them to hold more properties
eg. A) $300,000 IO loan monthly repayments at 8.63% will be $2,157 per month (Commonwealth bank) (this is an actual loan I have a pre-approval for)
$300,000 P&I loan monthly repayments at 8.63 will be 2,442 per month (Commonwealth bank)so if you use option A you will be $285 per month better off.
most people only use IO loans for property in growth areas like capital cities
also its the Interest part of the loan that is tax deductible…not the princible
all the best happy investing
An investment loan is simply a loan used for investment purposes, like a home loan is to buy a home a car loan to buy a car.
Investment loans can be either IO (interest only) or P&I (prinicple and interest), the benefit of IO are the extra tax deducations available when negatively gearing and to allow your greater cash flow for other investments or paying off non tax deductable debt.
A mortgage is simply the document that secures a property as security. So both home loans for your private recidence and investment loans for your investment property will have a mortgage.
$300,000 P&I loan monthly repayments at 8.63 will be 2,442 per month (Commonwealth bank)
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