Recently many lenders have made increases to their investment home loan products. This was done at the behest of APRA, the regulator, who was looking to curb investment lending and in particular, interest only home loans.
Whilst many lenders have applied this to all investment loans, there are some lenders that have only applied the change to Interest Only loans and are offering lower repayments for those who have loans for investment purposes but are committed to making Principal & Interest repayments.
Most investors opt for Interest Only repayments to maximise the value of their tax deductions.
The spare money they have by making less of a repayment is usually channelled elsewhere into non-deductable debts such as debt for the home that they are actually living in.
You may wish to read this article for a more in-depth reasoning as to why investors choose to make interest only repayments.
For investors who have paid off their home, it may be a good idea to look at making Principal & Interest repayments to get the savings from a lower interest rate.
It would be particularly relevant for investors who are planning to pay off the home and hold onto it as a long term investment.
For others, while making Principal & Interest repayments may reduce the value of your tax deductions (and therefore reduce gearing benefits), the net effect in terms of money saved by the lower interest rate, may still be greater.
If you’re looking at restructuring your loan repayments, we always recommend discussing the effects with your Accountant or Tax Advisor to work out what is best for your situation.
If you’d like to find out more about lower rates on your investment loans by switching to Principal & Interest repayments, please get in touch with us about our obligation free mortgage service.