All you need to know about
All you need to know about
An investment home loan, also referred to as an investment property loan or mortgage, is a specialised financial product tailored for individuals seeking to purchase a property not as a personal home, but as an investment. Such investments could involve purchasing a property to lease, or buying with the intent to improve and sell at a profit later. These loans come with unique terms and conditions, here we’ll explore some of the nuances in investment home loans.
Property investment occupies a pivotal role in New Zealand’s economy and cultural ethos. The property market has consistently outperformed over the years, often yielding better returns than other investment avenues. As of September 2023, the median house price in New Zealand stood at approximately NZD $899,000 (qv.co.nz), and while this is approximately 4% lower than 12 months prior, it is still a whopping 210% up from 10 years ago (2013 QV data). This upward trend has rendered property investment appealing for many New Zealanders, who view it as a route to financial stability. Moreover, owning multiple properties is often perceived as a symbol of success, further fuelling the popularity of property investment.
A comprehensive understanding of home loans is crucial for anyone looking to purchase a property, whether for personal use or investment purposes. This section delves into the definition, types, and importance of home loans, as well as the role of home loan specialists.
A home loan, often referred to as a mortgage, is a sum of money borrowed from a financial institution or bank to facilitate the purchase of a house. The property in question serves as collateral for the loan. This means that if the borrower defaults on the loan repayment, the lender reserves the right to seize the property. Home loans generally have a fixed term, such as 25 or 30 years, and the interest rate may be either fixed or variable.
There are several types of home loans, each designed for specific purposes and with varying terms and conditions. Below we explore some of the most common types:
1. Residential Home Loans
Residential home loans are tailored for individuals or families intending to occupy the property as their primary residence. These loans typically offer lower interest rates and more flexible repayment terms compared to other loan types, as they are deemed less risky for lenders.
2. Commercial Property Loans
Commercial property loans are designed for properties that will serve business purposes, such as office buildings, retail spaces, and warehouses. These loans generally come with higher interest rates and stricter terms due to the elevated risk associated with commercial properties.
3. Investment Home Loans
Investment home loans are specifically intended for properties that the borrower plans to rent out or sell for a profit. These loans are very similar to residential home loans however, different assessment criteria and conditions are applied. They are attractive as they can offer substantial potential returns through rental income and property appreciation.
Home loans are a vital instrument in property investment. They provide the necessary capital for investors to acquire properties, which can yield income through rent or appreciate over time for a profit when sold. Without home loans, many individuals would lack the financial capacity to invest in property. Moreover, the interest on investment home loans is often tax-deductible, further enhancing the profitability of property investments.
Home loan specialists, also known as mortgage brokers, are instrumental in the home loan process. They serve as intermediaries between borrowers and lenders, aiding borrowers in finding the most suitable loan products that align with their needs and financial circumstances. They also assist with the loan application process, providing advice on how to bolster chances of approval, and can negotiate better interest rates on behalf of the borrower. Their expertise and market knowledge can be invaluable, particularly for first-time property investors.
Investment home loans can serve as a potent tool for those aspiring to enter the property market in New Zealand, or expand their investment portfolio. However, it’s imperative to approach this with a clear understanding of the potential risks and benefits. Always consider the affordability of your investment and stay informed about the impact of market trends and regulatory changes on your investment.
Keep in mind that there are some nuances and details that can restrict your ability to borrow and prevent your progress as a property investor. We recommend consulting with a financial advisor or a home loan specialist who can provide guidance tailored to your specific circumstances and goals.
Whether you’re a first-time investor or have previous experience, consulting with a home loan specialist can help you make informed decisions and potentially save you a significant amount of money in the long run.
Why don’t you get in touch for a no obligation chat and see if we can help with your situation?