An investment property loan is a type of home loan that someone borrows to invest. It’s a mortgage designed for those who intend to buy a property to invest – renting it out to receive income from it.
An investment loan is a risky business because if the market fluctuates you will get bigger returns on the rise and higher losses on the plummet. Investment loans (borrowing to invest) work on a similar premise to other home loans. Individuals who can’t afford to buy the property without a loan can borrow this type of mortgage. It can be used to invest in apartments, houses, lands, or commercial property.
Investment loans have strict approval conditions and features. For instance, this type of loan requires a higher loan-to-value ratio (LVR) – which means when you buy a property, you have to pay a higher deposit to the lender to get the money you need and then repay the loan with higher interest rates on average than home loans in regular installments.
If you are opting for a variable rate loan, the interest rate and payments may increase – say, by 2% to 4%. Could you still have enough money for the repayments?