There are very competitive home loan rates in the market for owner occupiers if you are prepared to choose principle and interest and this is a great time for you to consider a home loan health check. I’m sure we can help you save $1000’s in home loan repayments.
But what about for investors? You may recall on 31 March 2017 APRA sent a letter to all ADI’s to immediately take steps to reduce their exposure to interest only residential mortgage loans to 30% (currently representing approx 40% of bank lending). An important component of investment lending is to utilise interest only (IO) repayments so generally this affects investors more. IO is popular with investors for a few reasons including the assumption that the property is going to increase in value and create equity for their next property purchase, investors can maximise their cashflow and use the tax deductibility of interest on their investment loan repayments. IO may also offer the option for investors to prepay interest for the upcoming financial year, allowing them to claim next financial year’s benefits in the current one.
In the last month most lenders have increased their interest only rates on loans by around 0.3%. In addition, if the purpose is for investment, many have an additional interest rate loading of 0.2% so it all adds up. Some lenders will no longer offer you an interest only option on owner occupied properties and others have reduced how much you can borrow if interest only is required.
As for investment loans, the higher the loan balance and longer the IO period, the more an investor can maximise their tax-deductible benefit so your strategy shouldn’t change just because of the rate. As we enter the new financial year, lenders may relax their focus on capping interest only appetites through rate hikes … that is until they head towards 30 June again and need to watch their loan book exposure all over again. The Home Loan Company can help you compare the best and most competitive investment home loans available for you. Get in contact with us and we’ll help you achieve your strategy.