Your Choice Of Investment Loan Will Impact On Your Investment Return.

If you have an existing home loan, have built up equity in your home property, you may now feel that the time is right to invest in shares or property. Like most investors you will leverage off the equity in your home to help fund the investment acquisition. In addition you will obviously be seeking out an investment loan to complete the purchase.

While it may appear an easy process to simply obtain a long term investment loan from your bank, the terms and conditions of that investment loan as well as its structure are important if you are to maximise the return on your investment acquisition.

Financial planners, accountants and other investment advisers will always recommend that you pay down your home loan debt as quickly as possible. This is because there are no tax concessions on home loan interest – you are paying this in after-tax dollars. If you are to reduce your home loan faster you must be in a position to apply as much of your surplus personal income (from salary, bonuses etc) to the repayment of your home loan debt.

Most investors accept that when they take out an investment loan the interest that they will pay on that investment loan will exceed the rental or dividend income and costs associated with their investment acquisition. They also accept that the shortfall between the investment loan interest and costs and the rental / dividend income will be meet from their surplus personal income. In effect they are subsidising the investment. By structuring your investment loan carefully you can avoid having to subsidise the investment loan interest and instead put yourself in a position where your surplus personal income is applied to additional repayments on your home loan.
By ensuring that your investment loan structure is right from the outset you position yourself to repay your home loan much faster.

As an example:
Home Loan $250,000 @ say 6% p.a. over 30 years $1498 per month
Total interest over the loan term $289,595
Additional monthly repayment of say $500 per month
(otherwise being utilised to meet investment loan shortfall)
Total interest over the loan term $393,466
Interest saved otherwise paid in after-tax dollars $146,129
Your loan is paid out in 16 yrs + 5 months vs 30 years.

This result is possible if you structure your investment loan package so that it includes an investment line of credit. You access the funds available in the investment loan line of credit to meet the shortfall coast of $500 per month on your investment acquisition. The ATO has issued a private ruling to the effect that where a taxpayer borrows to fund the investment loan interest and cost shortfall on an investment property or shares then the interest on that borrowing will also be tax deductible. Such Private Rulings provide the taxpayer with some guidance as to the ATO’s view on the deductibility of capitalised interest. Speak with an expert in the mortgage field before committing to an investment loan and build wealth faster.

By: david Nalin

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Austral Mortgage makes choosing the right Investment Loan for you easy. Your Choice of Investment Loan will impact on your Investment Return.