Cross-collateralisation , or cross securitisation, is a specific investment strategy which refers to borrowers using more than one single property as security to acquire an investment loan. This is mostly bundling your loans together and lowering your LVR.
Split Facilities is where we access equity from property and arrange a separate loan on the new purchase not connected to the original property purchase. It is a ‘standalone’ product. This means if you sell or refinance each loan, they remain independent of each other.
The concept of negative gearing is applied when a potential buyer borrows money to invest, but at the end of the financial year, has the interest and running costs collectively add up to become more than what their investment income is. This effectively has them running at a loss. A borrower can use this net loss in order to claim a tax deduction against their other incomes.
Every lender in Australia has a standardised variable interest rate as per the interest rate policy. Using the cash rate policy of the Reserve Bank of Australia , the bank calculates a base interest rate which applies to all of their borrowers. However, when lenders assess your home and investment loan, they don’t determine a buyer’s capacity on the base interest rate.
Rather, they normally add an extra 2% or 3 percent points or what is called a ‘buffer’ to the official Standard Variable Rates during their calculations. This added percentage is a bank’s cushion. It is their way of mitigating risk in case the standard variable rate was to suddenly fluctuate. This is also their way of covering their funding costs as well as their profit margin per application. The combined rate, used as a buffer, is a bank’s assessment rate.
These ‘buffers’ can be applied to other loans not being refinanced, or to the loans taken from other lenders. Irrespective, these buffers can and do affect your borrowing capacity.
Loan Terms – The Length of Your Loan
If you’re wondering how to get an investment loan for certain, think about the loan term before you apply for one. That is because this is one of the factors that lenders seriously take into account before accepting or rejecting an application. A loan term is essentially the duration of time online payday loans in RI the loan lasts. If the overall period is quite long, a lender automatically assumes that due to the minimal monthly payable, there are fewer chances of complete investment recovery – mostly due to the high probability of a borrower’s circumstances changing over time.
As with the majority of the investment options, it seems to be more favorable to take an interest only approach if you have your own home loan, too. Most lenders offer terms ranging from one to ten years, which then converts to principal and interest. The longer the interest-only term, the higher the payments will be when it converts into principal and interest.
However, while a shorter loan term does translate into a higher monthly payment for the borrower, it means greater security for the bank, thus effectively increasing the chances for an investment loan approval.
Serviceability – Ability to Repay
One of the last, but by no means the least, important factors are taken into account when lenders assess your investment loan is serviceability. Simply put, a borrower’s serviceability is their ability to meet all the requirements of loan repayment. By factoring into the equation the potential buyer’s income, their credit history, their current commitment and expenses, amount of loan, and percentage required, a lender calculates whether or not, you, as a borrower, will be able to make returns on their investments in a timely, profitable manner.