Photo by Paul Hanaoka on Unsplash
Australia’s record-low cash rate is motivating investors to pay down their home loans faster.
That’s according to ‘Your Property Your Wealth’ director and buyer’s agent Daniel Walsh who said switched on investors were making the most of lower repayments by funnelling extra cash flow into their loans.
“Investors with variable mortgages have seen interest rates tumble by one to two percentage points over the past year,” Mr Walsh said.
“Some investors have also opted to refinance now that the lending environment is more favourable to them, which has resulted in their repayments dropping even more.”
“Rather than frivolously spending that extra cash flow, many investors are opting to pay down their debt.”
The Reserve Bank of Australia has cut the cash rate three times in 2019 to a historic low of 0.75%,and investors are now seeing variable loans with rates as low as 2.99% p.a. at the time of writing.
Mr Walsh said the tactic of making extra repayments wasn’t surprising, given that most portfolios would become neutral or positively geared in the near future.
“In fact, the 2019 PIPA Investor Sentiment Survey found that 52% of investors expected to be positively geared within five years,” he said.
“What’s interesting is that the research was conducted before one of the recent rate cuts, so that timeframe is likely to be dramatically shortened.”
Mr Walsh bought his first property a decade ago at age 19 as an apprentice and has since expanded to a nine-strong portfolio worth $4 million.
He recently refinanced his portfolio and now has an extra $9,000 in cash flow to pay down his borrowings, in addition to increasing his passive income to $68,000 a year.
“We are using those extra funds to pay down our portfolio, which at the end of the day is the goal for all investors,” he said.
“Of course, buying strategically located properties will increase your chances of solid future capital growth.
“However, the debt does need to be repaid at some point and the current lending conditions as well as low interest rate environment makes the timing perfect for investors, like us, to do just that.”
Check out a snapshot of some competitively-rated variable rate, principal and interest investment home loans below.
Lender | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Variable | More details | ||||||||||||
| FEATURED | Smart Booster Investor Bundle (Principal and Interest)
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Smart Booster Investor Bundle (Principal and Interest)
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| Variable | More details | ||||||||||||
| FEATUREDGET APPROVED FASTER WITH A DIGITAL APPLICATION | Neat Variable Investment Loan (Principal and Interest) (LVR < 60%)
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Neat Variable Investment Loan (Principal and Interest) (LVR < 60%)
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| Variable | More details | ||||||||||||
| 100% FULL OFFSET ACCOUNT | Ocean Investment (Amounts < $1m, LVR < 60%)
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Ocean Investment (Amounts < $1m, LVR < 60%)
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- Option to add an offset for 0.10%
- No monthly or ongoing fees
- Unlimited redraws
Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of August 10, 2022. View disclaimer.
Investor lending commitments fall
Australian Bureau of Statistics data released earlier this month found that new lending commitments for investment dwellings fell 4.0% from August to September 2019.
This data comes after three straight months of rises, totalling 11.6%: the fastest rate of growth in the value of investment loan commitments since November 2016.
The September falls were driven by Victoria and Queensland, down 6.5% and 7.0% respectively.
Investment dwellings excluding refinancing. Source: ABS
2019 has been a favourable year for investors, with lending restrictions relaxed by lenders.
Westpac raised their maximum loan-to-value ratio (LVR) for interest-only loans and loosened rules around its Household Expenditure Measure (HEM).
ANZ made the same changes to investor interest-only loans in March, while the two big four banks made several cuts to their serviceability floors over the course of the year.
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