Financing your investment property can make a big long-term difference to your financial wellbeing. That’s why it is important to get good advice and look at the various options available to you.
The interest on an investment property loan is generally tax deductible; however keep in mind that your borrowing costs are not immediately deductible, so you’ll need to know the difference.
Also, avoid mixing up your investment property loan with your home loan. Keeping them separate will help maximize your tax benefits and reduce your accounting costs.
Depending upon your circumstances, you may choose a fixed rate loan or a variable rate loan. It is best to consider both options carefully before you decide. Over time, a variable rate will tend to be cheaper, but if you select a fixed rate loan when the time is right it can really pay off.
Another thing to consider is setting up your investment loan as Interest Only (rather than Principal and Interest). Setting it up this way will increase the tax effectiveness of your investment, particularly if it is for a home loan.
The reason Interest Only loans work well for investment properties is that with a Principal and Interest loan, your negative gearing benefit reduces as you pay down the amount of your loan.
NB: Remember to always seek professional financial advice before making any changes to your financial situation.
