How do I calculate how much free equity I have in my home?

To find out how much free or usable equity you have in your home, multiply the value of your home by 0.8 to find out how much 80% of your property value is. Once you’ve found out this value, subtract the current balance of your home loan to give you the usable equity you have in your property. For example, using a property worth $750,000 and a remaining loan amount of $520,000: Property value x 0.8 = 80% of the value of your home 750,000 x 0.8 = 600,000 (80% value) – existing home loan = usable equity $600,000 – $520,000 = $80,000 usable free equity

Should I get an interest-only or a principal and interest loan for my property investment?

This will depend on your personal financial circumstances. If you’re wishing to use your investment property as a negatively-geared income tax deduction, or are looking to sell within the next five to ten years, you may be better off getting an interest-only investment loan. However, if your property is positively geared and will make a profit, you’ll likely want to pay it off as quickly as possible, in which case a principal and interest loan with interest-reducing features like an offset account may be your best option.

Do I have to stay with the same lender to get my investment loan?

No – however, it’ll certainly speed up the process and reduce lender fees if you apply to your existing lender for your no deposit investment home loan in Australia. You will also have a higher chance of getting your investment loan approved if you use the same lender, because some lenders will be reluctant to loan money to borrowers who already have an existing mortgage on a property. If a second lender does come in, wanting security over a mortgaged property, the two lenders may have to sign a Priority Agreement (also known as a Subordination Agreement), which is a legal agreement stating the first lender has priority rights to be repaid in the event of a loan default.

Will my lender want to get a valuation done when I apply for my no deposit investment loan?

Yes – your lender may well need to get a valuation done on your home before approving your investment loan. This is to ensure that an independent valuer agrees with the property valuation you’ve supplied, so the lender is assured it has verified security in the home. Your lender will arrange this valuation on your behalf and may charge you around $300 to $500 for this service.

Are interest rates for no-deposit investment loans higher than for conventional home loans?

Interest rates for investment loans of all sorts tend to be slightly higher than for standard home loans. However, there are still very competitive home loan interest rates in the market. Compare home loans with Savvy to find a loan that has a very low interest rate but all the loan features you need to get your mortgage paid off sooner and save thousands.