What Is An Investment Loan?
An investment loan allows you to borrow money to invest using managed funds, cash investments, and accepted shares as security. It provides you with the chance to invest more than you could using your own money, thus increasing your potential for higher returns.
The amount you can borrow depends on the investments that you provide as security.
Why Use an Investment Loan?
Borrowing to invest can help you:
- Diversify your investments. As you have more money to invest, you can diversify your investment portfolio.
- Increase the size of your investment portfolio. With an investment loan, you can increase the amount of money you can invest. As your investment capacity rises, so does your ability to grow your wealth.
- Access cash without selling your existing managed funds or shares. With an investment loan, you can borrow against the equity that you have in existing investments without causing capital gains.
Tips for Choosing the Right Investment Loans
Choosing the right investment loan can be confusing. To help you out, I’ve listed 5 tips to help you find the right one.
- Do your research.
The terminology around investment loans can be quite confusing and complicated. So, before you even think about applying for a loan, make sure to educate yourself about concepts like equity, depreciation, funding time, default rate, tax concessions, and more.
- Know your goal.
Why are you investing? Is it for your retirement? Do you want to generate more income? Either way, it’s important to know and set your investment goals so you know your endgame.
- Have an investment strategy in place.
Once you’ve done your research and established your investment goals, it’s time for you to set an investment strategy in place. Knowing your strategy will help determine the type of investment loan that you choose. For instance, some investors are confident that their property will grow in value, so they may go for a specific type of loan. Others may follow a ‘buy and hold’ strategy, purchasing a property and paying it off over time while collecting rent.
- Choose the best interest rate.
Obviously, the interest rate of your investment loan is an important factor. With a lower interest rate, your repayments will be lower as well. While the majority of investment loans have higher rates than owner-occupier loans, it’s still possible to find those with lower rates. Also, you’ll need to decide whether you want a fixed or variable interest rate – both options have their own pros and cons, so make sure to consider those as well.
- Get a loan with the features that you require.
Take a look at a loan’s features and choose the one with the features that you need. The ability to choose repayment frequency is a popular investment loan feature for investors. When you have an investment property, it’s ideal to sync your repayment schedule with how often you get rental payments. If your tenants pay rent on a monthly basis, then your repayment for your investment loan should be on a monthly term as well. While this won’t do much in the short term, it can add up and help you save on your investment loan over time.
If you’re looking for more tips on choosing the right investment loans, don’t hesitate to call me! With my expertise, I can help you find the best investment loan that suits your needs and goals.
Will Bell Mortgage Broker is a mortgage and finance broker based in Melbourne specializing in residential home loans. Will is all about the average Australian understanding just enough of the broader economy to take action on your own personal economy. He is the host of the My Personal Economy Podcast which you can check out here.
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