When you are choosing a loan, your search needs to go much deeper than who is offering the best interest rates, and the lowest fees and charges. As you are seeking to borrow to invest and all the interest you will be paying will be tax-deductible, sometimes a lender with a slightly higher interest rate may be a better choice for you and save you money in the mid to longer term.
The Australian lending landscape has changed dramatically over the last 12 months and many of the policies that were in existence this time last year, are now very different.
Each institution lends money on the basis of their credit policy. The credit policy details all the rules that must be satisfied for you to get a loan.
The policies cover aspects like:
- Security. What type of security will be acceptable – The postcode of the property and the type of property. The property you are trying to buy is what you are offering the lender as security. They allocate certain risk profiles to each postcode area in Australia. If they deem a certain postcode to be an acceptable risk, they may lend you 95% of the purchase price. If they deem it to be a higher risk, meaning, in their estimates there is a greater chance of the property falling in value than other areas, they may only lend you 80%. As a part of your application they will also consider the risk ratings of the property (from the valuation)
- Documentation. What type of documentation you will need to supply depending on your type of work: PAYG or Self employed. Eg if you are self employed, some lenders will require 2 years business & personal financials as well as current BAS returns. Other lenders will only require 1 year’s financials.
- Rental income. If you have a current rental property, most lenders will only take in a percentage of this income, 80% in many cases in determining how much you can afford to borrow.
All this before you seek to understand the loan features, fees and interest rates of each lenders products. It can very time consuming to undertake this research and it’s advisable to engage the services of licensed brokers that specialize in investment property.