95% Investment Loans

2011 May 3

What is a 95% Investment Loan?

A 95% investment loan is ideal for those of you who do not have a large amount of savings.

With this type of loan, the bank will fund up to 95% of the purchase price of the loan and the borrower must contribute the remaining 5% of the loan amount. The borrower must also pay any associated legal fees and stamp duty.

General Information about 95% Investment Loans

Banks are usually reluctant to lend more than 90% of the purchase price. The mortgage lender must have a certain level of assurance that they will be able to recover the full amount in the event of a default on the loan. The 95% investment loan only allows the lender a 5% buffer if the borrower defaults on the loan.

However, where you have pre-existing equity in any property, this will support your application. The banks take other factors into account, including, your credit score, employment status and the strength of your finances.

The lender will also consider the type of property that the investor is buying, whether it be a free-standing home, unit, apartment or town-house.

Refinancing borrowers typically do not qualify for 95% investment loans.

Loan types and rates

Banks offer a variety of loan options with different fees and rates. Borrowers should shop around so that they can get the best deal.

Many banks offer low and fixed rate or variable interest rates. Some 95% interest loans do not charge application fees or account keeping fees.

Some banks offer interest only payments for up to five years or more.

Tax benefits of 95% investment loans

There are a variety of tax benefits associated with owning an investment property.

A tax professional can help investors to reduce the amount of tax payable. Some typical deductions may include fixtures, fittings and others.

Rental income and 95% investment loans

Typically, investors have large property portfolio and may be receiving a large portion of their income from rent.

However, most banks prefer that you have additional sources of income, as the rental market fluctuates and there may be periods where you do not have tenants and therefore have no income stream.

As such, some banks have restrictive policies which only allow you to include 75% of your rental income. Although, there are some lenders which may accept 80%.

How much is Lenders Mortgage Insurance (LMI)?

Lender Mortgage Insurance (LMI) is applicable for 95% loans. The amount may vary from 1.5% to 3.5%, of the loan amount. Depending on the size of your loan, this can be quite a significant sum!

However, some lenders allow borrowers to include the LMI as part of the loan amount.

Apply for an investment loan

Maximise your chances of getting approval and find out how you can get great discounts and competitive rates.

Get a 95% investment loan today.

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