Investing in property is a big decision. Once you have worked out whether or not you can afford the repayments, then the next thing to address is what time of loan structure you should go for. There are a plethora of options, however, always remember this point. Unless you have a very good reason not to, always go for interest only and a full offset account when choosing between options. These two factors are so critical when setting up a loan that they need future discussion.
You do not want to pay off principle with an investment property. The reason for this is you want to negative gear as much as possible to get the maximum tax advantage. Paying off your investment reduces your total interest payments and thus reduces your tax advantage. You want to put any spare money on your home loan for your owner occupied property.
Explaining why you need offset rather than redraw is complicated but it’s to do with the way the tax office treat extra savings that are put in your redraw account compared to an offset facility. Technically with a redraw you are paying down your mortgage which will reduce your interest payments. Remember, that’s not a good thing when it comes to an investment property and negative gearing. An offset account works differently. This is particularly true if you change your owner occupied property into an investment property and don’t have an offset account attached to your owner occupied. Any extra payments made are treated as paying off that property which is not ideal.
You should also obtain income protection insurance quotes from income protection insurance Australia to work out how much income protection insurance you require to continue to pay off your mortgage should your circumstances change. Also, look at a life insurance or trauma insurance policy.
You should also speak to a qualified mortgage broker when setting up your loan. Don’t go directly to the banks as a mortgage broker can help you compare between products from different banks. They don’t charge a fee, taking commission from the banks.