What our customers say about us

Thanks for all your help and for making it so easy for me. Life will be so different now.

Jan Vincent
Montrose, VICTORIA

Thank you very much for the service you provided us regarding the refinance of our home loan. All went well and smoothly with no problems. We are happy with the new loan arrangement. Once again, thank you very much for your assistance.

Bala Krishna
Cranbourne VICTORIA

We have found Barry Le Brocq of Melbourne Mortgage Finance to be very patient, caring and diligent in achieving a successful outcome to our refinancing requirement. We have no hesitation in recommending his services to others.

Don & Christine Perrett
Leongatha, VICTORIA

Many thanks Barry for the exceptional service that you have provided. We will most certainly be recommending you to our daughter (Bank of Melbourne branch manager) for any future customers who need a reverse mortgage loan.

Paul & Barb Spark
Somerville VICTORIA

 

LENDING UPDATE 24.09.18

  • Product of the month : 3.62% fixed for 2 years
  • Tips for First Home Buyers
  • A reverse mortgage loan can fund an Aged Care bond
  • If your bank says “No”, alternative lenders are available
  • Use a Deposit Bond when cash is not available

Overview to Investment Loans

If you are thinking about buying an investment property and have decided on your budget, the type of property and its location, all you need to do is arrange the right loan to suit you. There are a number of considerations including a wide variety of products and the structuring of your financial arrangements so as to fully achieve your investment goals.

Step 1: Consult your Accountant or Financial Adviser

Before applying for finance, it’s critical that you take the time to check with your Accountant or Financial Adviser whether you are:

  • Purchasing the investment property in the correct name(s)
  • Arranging the investment loan in the correct name(s)
  • Offering the correct security property/properties for the loan
  • Holding the correct documentation for the Australian Taxation Office

This is important and is worth the expense (which is tax deductible anyway) to ensure that you’re complying with the relevant legal and taxation regulations. Much difficulty can be avoided later by structuring your affairs correctly at the start!

Step 2: Loan Structuring

It’s important to assess your present financial situation and the type of loan structure that best suits your needs. The first step will be to look at ways of raising a deposit (5% or 10% of the price) and the loan structures which are commonly used in financing an investment property.

Coming up with a deposit can be achieved by:

  • Saving sufficient money to pay cash (this may take years)
  • Borrowing against the equity in your current home
  • Arranging a Deposit Bond until settlement date

It’s common for investors to borrow 100% of the purchase price plus the associated costs. This is often recommended by financial advisers because tax benefits are directly related to the borrowings i.e. when you maximise the borrowings you generally maximise the tax benefits. Of course, it’s important you have sufficient income to handle the loans and other commitments. Lenders will usually require that you satisfactorily pass their Serviceability Assessment before the loan is approved.

To finance an investment property using the equity in the family home, you’ll generally need to provide both the home and investment property as combined security for the loan/s. There are two common financing scenarios:

One loan:

For both the home and investment property. You can obtain a single loan facility with different sub-account numbers – one for the family home and the other for the investment property. There is no confusion over which tax-deductible portion of the facility relates to the investment property and which non-deductible portion relates to the family home.

Two loans:

The existing home loan will remain in place and a new loan will facilitate the purchase of the investment property. Both loans will again have separate account numbers to ensure that the tax deductible and non-deductible loans are separate and easily recognised.

Loans are usually arranged so that total borrowings do not exceed 80% of the combined security values. No mortgage insurance would then be payable.

The type of loan structure you choose largely depends on your personal preferences and how much the lender will charge you in fees for the set up. Of course, if you are to purchase an investment property without using a second property you’ll only require a single loan. Loans up to 95% of the purchase price are available, but mortgage insurance will be payable.

Step 3: Types of Investment loans

There are several types of loans available and within these loan types are a couple of fundamental options that you’ll need to decide upon. These options include:

  • “Principal and Interest” or “Interest Only”

    This choice is between having the loan balance reduce by making “principal and interest” repayments or having the loan balance remain the same by making “interest only” payments. Investors are usually advised to take an “interest only” loan, because principal reductions on an investment loan are not tax deductible. Therefore, the money that forms the principal component could be used to further invest in another tax advantageous purchase.

  • Fixed or Variable Interest Rates

    This choice is about whether you are comfortable with your loan repayments fluctuating with market interest rate movements. Investors are often advised to select a fixed rate as this ensures a consistent monthly repayment amount, thereby allowing more certainty with budgeting.
    These days fixed rate loans are not as restrictive as they once were. Many lenders allow principal payments to be made without penalty, although in most cases penalties still exist if you pay the entire loan during the fixed period. Also, most lenders now have the same interest rates for investors and owner-occupiers.

So what are the 6 most important points to look out for when preparing to finance your investment property?

  1. Make sure you discuss your plans with your Accountant and that you have the property purchase and loan application in the correct names.
  2. Ensure you set up attractive loan facilities with loan amounts that are manageable. Insurance such as Income Protection and Landlord’s Insurance are strongly recommended. Premiums for both are tax-deductible.
  3. Search for a lower interest rate. Melbourne Mortgage Finance can assist you with this. A lower rate means lower payments.
  4. Low fees…no one wants to pay high fees. Lenders sometimes offer “no fee” special deals which we can help you locate.
  5. Consider an “interest only” option for an investment property.
  6. Arrange flexible loan facilities which enable you to move quickly and easily should future purchase opportunities arise.

Yes.

It is very important that your investment purchase is structured correctly. Your Accountant can give you expert advice on loan structuring to ensure that you maximise your tax entitlements and minimize any future difficulties. For example:

  • Which property should be the security for your investment loan?
  • If you are offering your residence as security, who are the owners?
  • In whose name should the investment property be?
  • Who should be the borrowers for the investment loan?
  • What combination produces maximum tax effectiveness and best outcome?

It is critical that you have the correct structure of “Owners”, “Borrowers” and “Security Property” otherwise significant problems can arise in the future with annual tax returns, and the effectiveness of your investment goals may not be achieved. Consulting your Accountant first will ensure correct structure, compliance with taxation laws and give you peace of mind.

Yes.

Your existing home can be used as sole security for an investment purchase.

For example, you may be buying an investment property in your own single name. If you are a single person and your unencumbered residence is worth $500,000, it will be ample security for the purchase of an investment property worth $300,000. Important issues will arise, however, if your residence is already mortgaged or if your residence is owned in joint names with your partner as co-owner.

An alternative is to offer the investment property as sole security for the loan, or add the equity in your residence as additional or secondary security. Again, it is important to discuss your plans with your Accountant first, and not just rely on the lender’s requirements before proceeding. The lender’s requirements may not be in your best interests in obtaining maximum tax effectiveness.

Many borrowers on high incomes do arrange a 100% investment loan and they may even borrow the costs as well. An additional security property will be required if you borrow 100% of the purchase price. There are usually greater negative gearing taxation deductions available if you maximise your borrowings.

You should remember, however, that maximising your borrowings will also maximise the rental shortfall each month which must be funded from your own pocket.

For example, if your loan repayments are $2,000pm and your rental income is $1,200pm, there is a shortfall of $800pm to be funded by you plus normal outgoings for insurance, repairs, agent fees, council rates etc. Your total monthly shortfall could be $1,000pm or more. It is important that you are capable of covering this monthly shortfall in addition to your normal living expenses.

You can also discuss with your Accountant the possibility of claiming your negative gearing taxation benefits progressively during the year instead of making a large single claim at tax time. This will have the effect of reducing the monthly shortfall which you need to fund.

If your income is lower and you may have difficulty funding a monthly shortfall, a 100% investment loan may not be sustainable or suitable for you.

This is a matter of personal choice. You should obtain advice from your Accountant before proceeding.

Variable rates generally give you flexibility to change your loan or repay it early without interest penalty.
Fixed rates
give you certainty and protection against possible future rate rises but give you less flexibility and may result in interest penalties if you repay the loan early. It might be appropriate to have a combination of Variable and Fixed rates.

Most lenders will allow you to have a combination and this gives you the benefits of both alternatives.

Again, this is a matter of personal choice. Some investors like to reduce the debt and aim at eventually repaying the loan fully. In this case, a “principal & interest” loan might be appropriate. Remember, however, that the “principal” component of your monthly repayment is not tax-deductible.

Other investors are purely tax-driven and only want to pay what is tax-deductible. For these borrowers, an “interest only” loan is more appealing even thought the loan balance is not reducing. If your income is tight, this structure may also be beneficial as it reduces your monthly payments.

Lenders will generally allow you to split your loan into separate parts, so having both structures is possible.

Melbourne Mortgage Finance offers an extensive range of mortgage products and services including

Home Loans, Investment Loans, Equity Access Loans, Low Doc Loans, 100% Loans, Refinance Loans, Commercial Loans, Deposit Bonds, Reverse Mortgages, Accommodation Bonds, Vehicle Finance, Plant and Equipment Finance, Financial Planning and Business Finance.

IMMEDIATE appointment can be made to meet at your home or office

  • NO CHARGE for assisting you. We receive a standard fee from the lender you select
  • reliable service, communication and follow-up. See “Testimonials
  • accreditation with 20 national lenders, allowing you to select from an excellent range of loans
  • we carefully listen to your needs, do our research, then present you with a short-list of three potential loan solutions. You choose the lender.
  • printouts of products, fees, interest rate and loan features are provided
  • arrange for your property insurance and personal insurance requirements to be assessed
  • ongoing availability to assist you after loan settlement
  • over 30 years experience in arranging finance and mortgage loans