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Best mortgage strategies for Sydney property investors

ByAndrew Mirams

1. Interest-only or principal and interest? Know when to use each

Let’s start with one of the biggest debates – interest-only loans versus principal and interest.

Interest-only loans can be appealing because they lower your repayments, at least for a few years, which can help with cash flow. This is especially useful if you’re negatively gearing because you’re only paying the interest on the loan, which is the part that’s tax deductible.

But remember, at some point, that interest-only period ends and you’ll have to start paying off the principal, often at a higher rate. 

It’s a great tool if used wisely. Just make sure you have a plan for when the higher repayments kick in.

On the other hand, principal and interest loans reduce your debt over time and generally come with lower interest rates. They’re better for long-term holds where you’re more focused on equity growth than short-term cash flow.

2. Leverage equity to grow your portfolio

Equity is your best friend as a property investor. If your Sydney property has gone up in value, you might be sitting on a goldmine of untapped borrowing power.

Let’s say your property is worth $1 million and you owe $600,000. That’s $400,000 in equity. 

Lenders will typically let you access up to 80 per cent of the property’s value, without needing lenders’ mortgage insurance. So, in this case, you could potentially pull out $200,000 to use as a deposit on your next property.

Just make sure you’re using that equity strategically. Don’t overextend yourself. Borrowing more means higher repayments. 

But if the numbers stack up and you’re smart about it, it’s a solid way to grow your assets.

3. Offset accounts are worth a look

An offset account is like a savings account that’s linked to your mortgage. The balance in your offset reduces the amount of interest you’re charged on your home loan.

For example, if your loan is $600,000 and you have $50,000 in your offset, you’ll only pay interest on $550,000. That can save you tens of thousands of dollars over the life of your loan.

For investors, offset accounts are especially handy. You can park rental income, tax returns or even your salary in there while still keeping it accessible. 

And if you’re planning to turn your investment into a primary residence later, this can be a neat way to keep your tax situation tidy.

4. Structure your loans to suit your goals

Not all loans should be treated equally. If you own multiple properties, it might be tempting to bundle them all with the same lender for convenience. But that can limit your flexibility.

Let’s take a look at cross-collateralisation versus standalone loans:

  • Cross-collateralisation ties multiple properties to the same loan. It can make things simpler but riskier. If something goes wrong with one property, the bank might come knocking on the others.
  • Standalone loans keep each property’s finances separate. It’s a bit more paperwork, but you get better control, easier refinancing options and reduced risk.

Chat with us about which approaches suit your personal circumstances, risk tolerance, long-term goals and portfolio structure.

5. To fix (or partly fix) or not to fix?

With interest rates in flux, locking in a fixed rate can feel like a no-brainer. It gives you certainty over your repayments, which can be comforting – especially in Sydney’s high-stakes market.

But it’s not always the best move. Fixed loans can limit your ability to make extra repayments or access redraw facilities. You’ll also be hit with a hefty financial penalty if you want to end the arrangement early, such as by selling the property and discharging the loan.

And if rates continue to drop, which looks like a certainty, you could miss out on savings.

A common workaround that might suit? Split your loan. Fix part of it, leave the rest variable. You get the best of both worlds – some certainty, some flexibility.

6. Be tax smart

We’re not tax accountants here, but we do know that smart mortgage structuring can make a big difference at tax time.

Some things to consider:

  • Keep investment and personal loans separate for clarity.
  • Interest on investment loans is usually tax-deductible.
  • If you redraw funds from an investment loan for personal use, that portion might no longer be deductible.

Always speak to an expert about your setup, especially if you’re thinking of refinancing, restructuring or pulling equity.

7. Get your pre-approval sorted

Sydney moves fast. If you find the right investment property, you’ll want to act quickly. Getting pre-approved for a loan gives you a head start and shows sellers you’re serious.

But don’t confuse pre-approval with a guaranteed loan. It’s based on your financials at a point in time and subject to change. Still, it gives you a sense of what you’re able to spend and it can save you a huge amount of time.

8. Don’t pay the loyalty tax

Set and forget is not a winning strategy when it comes to mortgages. Markets shift, interest rates change and lenders bring out new deals all the time. 

Those who take out a loan and never review it are bound to pay a loyalty tax to the bank. And it can happen sooner than you think. Regularly reviewing your mortgage can save you thousands.

You might be able to refinance to a lower rate, take advantage of special discounts and perks like cash-back bonuses, access equitiy for a new purchase, or restructure your loans for better cash flow.

And even if you stay with the same lender, it’s sometimes possible to negotiate a better deal.

Talk to us about how much you could be saving.

9. Play the long game

Investing in Sydney real estate is a long-term game. You might not get rich overnight, but with a smart mortgage strategy and a bit of patience, you can build real, lasting wealth.

And remember, your mortgage broker is your secret weapon. We know the market, we speak the lender lingo and we can tailor a plan that fits your goals – not just now, but into the future.

If you’ve got questions or want a second opinion on your current setup, feel free to reach out. Let’s chat about how to make your money work harder so you don’t have to.

Want help devising a winning mortgage strategy for your Sydney investment property? Talk to us about what’s possible.

Andrew Mirams
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