• WHY INVEST IN PROPERTY?
Investing in the right investment property can deliver solid long-term returns for investors. It is important to do your research to help identify an appropriate type of property.
• ARE INVESTMENT PROPERTY LOANS THE SAME AS HOME LOANS?
In the majority of cases, yes. Interest rates and loan features will usually be the same regardless of the purpose. Be mindful that interest only repayments may be available for longer periods on investment loans.
• HOW CAN I FUND THE DEPOSIT ON MY NEW INVESTMENT PROPERTY?
You will need a deposit when purchasing an investment property, just like buying any other property. However, if you already own a home and have established a reasonable amount of home equity, then you may be able to tap into it to fund the deposit on your investment property.
• WHAT IS NEGATIVE GEARING?
An investment property is negatively geared when the costs of owning it such as interest, maintenance, repairs and depreciation are greater than the income it produces. Negatively geared properties make a loss and enable a tax benefit to be claimed.
• WHAT HAPPENS IF I CAN’T GET A TENANT?
If the property is in good condition and in a good location you won’t have a problem getting a tenant. At the worst case, you can lower the asking rent. It’s better to have some rent than no rent.
• WHAT IS POSITIVE GEARING?
Investment property can also be positively geared. This occurs when the investment income exceeds your interest and other expenses. There is the possibility that you may be subject to additional tax on any income derived from a positively geared investment. Note, making money can be a good thing too.
• WHAT IS MORTGAGE INSURANCE?
Whenever you have less than 20% deposit, you always pay mortgage insurance or Lenders Mortgage Insurance (LMI). As the name suggests, LMI is a one off payment by the borrower to the insurer ( to insure the loan).
It insures the lender for any shortfall on the loan, so if you were ever in the position where the lender took legal action and forced you to sell your property, it would generally cover the lender if there was a difference for what your property was sold for and the loan amount still owing after the sale.
On 100% loans, dependedant on the lender and the risk, mortgage insurance can cost up to 3% of the amount you are borrowing. Up to 95% the amount would typically be up to 1.2% – 2% of the loan amount. As you get closer to 80% the cost can discount substantially.
• WHAT IS A STANDARD VARIABLE LOAN?
These are loans where the interest rate can vary throughout the term of the loan. That is to say the interest rate can go up or down during the loan term.
• WHAT IS A BASIC VARIABLE LOAN?
Basic variable loans are loans with lower interest rates but with fewer features than a standard variable loan. The interest rate can, as the name indicates, vary over the term of the loan. Therefore, the interest rate can rise or fall over the term of the loan. These loans are typically “no frills” loan products.
• WHAT IS AN INTRODUCTORY LOAN?
These are variable rate loans with a discounted interest rate off the standard variable rate (commonly over 1% less), lasting a certain period of time, usually 1 year. After this period they normally revert back to standard variable rates. Sometimes, depending on the lender, rates can be fixed or capped during the initial/honeymoon period.
• WHAT IS A FIXED RATE LOAN?
These are loans where the borrowers interest rate and repayments are fixed for a set period, usually from 1-10 years and sometimes longer. These loans revert to the standard variable rate at the time the fixed rate period has expired, unless “rolled over” for another fixed rate term (at prevailing rates)
• WHAT IS A PROFESSIONAL PACK?
A professional package offers you interest rate discounts depending on loan size . Fee free transactions and credit cards free of charge and a range of other offers are available. Professional packages are not just for professionals. Packages can start at a loan amount as little as $100,000.
• WHAT IS 100% INTEREST OFFSET LOAN?
You place all your salary and other income in an offset account that is directly linked to your home loan. Any balance in the offset account is 100% “offset” against your home loan. This reduces the amount of interest you have to pay and means your money is working harder for you.
• WHAT IS AN EQUITY LOAN?
These loans allow borrowers to borrow up to a specified limit which is secured by a mortgage over the property. These loans provide access to funds, when required, up to the limit set. Normally, the minimum repayment required is the interest only. Some lenders however,do require that principal reductions begin to be made after a certain period of time.
• WHAT IS A DEPOSIT BOND?
There are 2 types of this facility, Standard and Long Term. A deposit bond is a guarantee or bond that supstitutes for a cash deposit between signing contracts and settlement when you buy a property. The maximum amount of the deposit bond is 10% of the purchase price.
• WHAT IS RISK INSURANCE?
Risk insurance provides an agreed financial benefit on the happening of an insured event. Risk insurance covers a number of insured events such as income protection, insurance / partial and total disability, trauma insurance through to payment in the event of death.
• WHAT IS FINANCIAL PLANNING?
Financial planning is about ensuring that your future lifestyle is as good as it can be by making sure your money is working as hard as you are.
• WHY DO I NEED TO SEE A FINANCIAL PLANNER?
Constant change in superannuation, taxation and social security legislation means that even simple decisions can have unforseen consequences over the long term. This can be particularly so as we move from work into retirement. A financial planner can help you plan for your future and to avoid some of the pitfalls and traps along the way.
• WHAT ONGOING SERVICES DO FINANCIAL PLANNERS PROVIDE?
- Reviewing progress in achieving your financial goals and advising strategies, as required
- Investment portfolio valuations and reviews
- Information on new investment opportunities
- Ongoing consultations, as required
• WHAT CAN A FINANCIAL PLANNER HELP ME WITH?
They can help you with budgeting, saving versus investing, minimizing tax, super, retirement planning and a range of financial planning tools. A financial planner can help you with different investment strategies for different circumstances, such as:
- Managing your investment tax effectively
- Saving for a home
- Planning for the costs of marriage and the benefits of combined income and savings
- Making your income go further by investing wisely
- Structuring your assets in the most effective way if you are self employed
- Planning for the birth of children and the loss of a regular salary whilst on maternity leave
- Planning your finances following a redundancy or when changing jobs
- Making the most of a financial windfall, such as an inheritance or a maturing term deposit
- Maximising your eligibility for government benefits
- Planning the retirement lifestyle you want
• I’M NOT PLANNING ON RETIRING ANY TIME SOON – WHY DO I NEED A FINANCIAL PLANNER?
Financial advice can make a big difference at every stage of life. No matter where you are in life, you want to make sure you’re making the most of your finances and making the right decisions for your own circumstances.
Whether you are in your 20s 30s 40s or 50s, the advice of a professional financial planner may be critical in helping you achieve your financial goals by devising a strategy that will work for you.
• HOW OFTEN WILL YOU REVIEW THE FINANCIAL PLAN AND WILL IT COST ME?
Your first appointment will be free. At that meeting, any further costs will be disclosed to you.
Every financial plan needs reviews, so find out what your financial planner will charge you for ongoing reviews of your financial plan, and how often they believe it should be done. As your goals and life changes in the future, so should your financial plan!
• WHAT CREDENTIALS SHOULD MY FINANCIAL PLANNER HAVE?
Your financial planner must be licensed by the Australian Securities and Investment Commission (ASIC) or be authorised to represent a licence holder. He or she will have met standards in terms of education, professional conduct, ongoing training, compliance and disclosure. They may be a member of a professional body, for example the Financial Planning Association (FPA). Your financial planner should be covered by professional indemnity insurance.