If your investment home loan interest rate begins with a “5”, you need to read this article as it could be starting with a “3” or a low “4”
It’s a tough market for most residential property investors at present, but there are still some opportunities to save significant interest in this area.
The crack down by the bank regulator, APRA over the last 12 months or so has seen a substantial tightening of residential investment.
To cool down this market, comply with their lending restrictions and restructure their loan books, many lenders have taken measures that have had a dramatic effect on clients with residential investment lending. Primarily these changes have been in the following areas:
· Reduction of LVR (loan to value ratio’s) for investment lending.
· Removal of standalone investment lending.
· Additional rate loading for investment lending.
· Additional rate loading for interest only loans.
The last two of the above points have had the greatest impact on our clients. For example, the additional rate loading for investment interest only lending can add between 0.4 to over 1% as compared to the owner occupier rate with principle and interest repayments.
One of our major banks currently has Residential Investment Interest Only repayments on a $500,000 loan @5.64%, where the Investor P&I rate is 5.20% and their Owner Occupier rate is 4.62% (all under their professional discounts package, as of 22/01/2018). Maximum 1.02% difference.
It has become questionable whether interest only loans are suitable for residential investment lending as even a 0.4% variation in the interest rates means significant additional interest expense. Using the above example, the loan repayment on a 30 year loan would be:
$2349 per month interest only (total interest in year 1 = $28,200 )
$2745 per month principle and interest (total interest in year 1 = $25,832)
Saving of $2368 interest in the first year, with extra repayment amount of only $396 per month.
So how can you save interest on your residential investment property loans ?
1. Call your current lender and let them know you are unhappy with the rate and ask for a discount. You may be surprised how much they may drop your rate. It is certainly worth a 10 min call.
2. Call us to see what alternatives are available.
At Fortuna Smart Finance, we have access to a range of lenders and keep on top of current market trends and special offers in the finance market place.
Currently one of our lenders for example has a special where for loans over $500,000 where LVR is up to 80% their investment rates are from 3.99% using principle and interest repayments or from 4.09% for interest only repayments. A portion of the rate could even be as low as 3.69% if owner occupier security is also used.
Using the previous $500,000 loan example, the saving in interest using interest only repayments option could be as high as 1.55% (5.64% – 4.09%) which is $7750 per year or $645 per month.
Yes you read correctly, $645 per month
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