Bank, Broker or Prowealth Money?
Where you get your money to fund an investment property purchase is just as important as the property itself. The wrong choice of lender or bad advice from the person behind the counter may cost you thousands of dollars over the life of your investment. That’s why it’s important to use a specialist in investment property.
A bank will only be able to offer you the loans available at their particular bank. You may think you are getting the best product or interest rate that suits your needs, however you will never be sure as one bank cannot offer you a loan from another bank. When it comes to investment property finance, the person behind the counter may not have the experience to ensure your loan is structured in the best possible way for tax purposes and asset protection. Bank staff are not accountants or real estate agents, or financial advisors so how can they possibly take into account your total picture?
A broker has the ability to offer you a loan from a wide variety of banks that may better suit your needs. A good one will be able to assess your personal situation and give advice on what product will best complement your investment strategy. A broker is usually a better option than a bank but you should be aware that brokers earn a living by writing loans. Some banks or lenders pay more commission than others so they may be influenced toward a certain product and may not understand tax implications when structuring the loan.
A specialist investment property lender like Prowealth Money operates similarly to a broker. In addition to having access to a wide range of banks and non-banks, specialist investment property lenders like Prowealth Money also have their own products specifically designed for the property investor. A specialist investment property lender should work hand in hand with your real estate agent, advisors and your accountant to ensure that you have :
- the best chance of getting your loan approved,
- the best product and rate for your circumstances, and
- the best asset protection and tax structure possible.
If you are going to become a property investor it makes sense to see a specialist broker/lender who can give you advice or suggestions in all of these areas.
What will it cost me?
The cost of your loan can be affected by your credit history, type of security property and the ability to verify your income. When assessing the total cost of a loan you need to consider some of the hidden fees like:
Up-front/ Establishment fees – Sometimes charged when you setup a new loan and is usually under $1,000.
Lender’s Mortgage Insurance (LMI) – This is a fee you pay when you borrow more than 80% of a property’s value. We’ll talk more about LMI in this chapter. This cost could add thousands of dollars to your loan.
Interest rate – The lowest rate may not be the best rate especially over the longer term. Many lenders offer a 1 to 3 year discount or honeymoon rate where you are charged a cheaper interest rate for the period. After this period ends, the rate will revert to the bank’s standard variable rate, which can often be a lot higher and cost you more than if you had taken a standard package from the beginning. This means you could have 1 good year, then 29 bad years of interest rates!
Account management/Transaction fees – These are fees to keep your account open, and range from around $6 to $20 a month. Over 30 years, they can add a significant cost to your loan.
Facility set-up charges (e.g. redraw) – If you over pay your home loan and wish to redraw funds to spend, many lenders charge a fee to do it. This fee could be $30-$50 per redraw so its important for your bank, broker or specialist to analyze how you will be using the loan to minimise this fee.
How will my loan work?
You will have to live with your loan account for a long time. Over 30 years your life circumstances will change many times so you will need a loan that is functionally strong and very flexible. Many basic loans offer low honeymoon rates but lock you into inflexible loans with no long-term price advantage. Some of the features you may want to consider looking for are :
The ability to have multiple loan splits or sub-accounts at no additional charge – For example, you may wish to make some of your loan fixed and some variable. This would require two loan splits Some banks will charge an account fee per split!
Change payment frequency – being the ability to pay either monthly fortnightly or weekly depending on what you desire or when you are paid which may save interest.
Change payment day/date or make additional loan repayments at anytime without paying a penalty.
Redraw funds when you are in advance on your loan. If you pay more than the minimum payment on your loan it would be nice to know if you can get the money back if you need to.
Use a cheque book – you may prefer a cheque book to make payments from your loan rather than access loan information using the internet or phone.
Change loan structure and features anytime after settlement – This could be switching from variable to fixed rates or from principal and interest repayments to interest only.
These are the main areas you need to consider before you apply for a loan for your new investment property and Prowealth Money can guide you through the maze of options.
