You may have noticed changes in your home and investment property loan interest rates over the last 12-18 months.
Most lenders have moved rates considerably during this time, especially for interest-only and investment property loans.
In years prior, lenders generally did not price their interest rate on loans differently for:
- interest-only vs principal-and-interest, and
- home vs investment property loans.
Regardless of the combination of the above, there was a single interest rate for that lender.
However, lenders now have 4 different interest rates for each variation of the above:
- Interest-only home loan,
- Principal-and-interest home loan,
- Interest-only investment property loan, or
- Principal-and-interest investment property loan.
This has been at least partially driven by government pressure on banks and other lenders to reduce their proportion of interest-only loans.
In previous years, we have generally recommended setting up such loans as interest-only and paying the principal that would you have paid as principal-and-interest into the offset account instead. This is best for tax purposes if your property is, or becomes an investment property in future, as well as providing greater financial flexibility if you want to access this principal in future.
But with the significant difference in rates between types of loans now, what should you do?
A good option that may be available to you is utilising a clever strategy to take advantage of a lower principal-and-interest rate, whilst also maintaining the benefits associated with interest-only loans, including maximising your current and/or future tax advantages.
Please contact us if you would like to explore the above further to see how you may be able to make significant savings on your loans. Please note that there is of course no cost to you for this, as a valued client of Doctors Wealth.