Are you thinking about purchasing a property other than the home where you live as an investment? Choosing to invest in real estate by buying one or more properties may be a sound investment for your future. When you invest in property, you can earn rental income, and if the value of the property increases, you can profit when you sell. You also own a real physical asset in a usually less volatile market than other investment options.
For these reasons, you may be planning to invest in real estate as part of your overall investment plan. But investing in property can’t be done in small measures as a property is a large purchase. You'll need substantial funds to purchase each investment property. This involves putting up your own savings to pay the deposit amount and finding a lender willing to loan you the rest. This means you’ll need to take out multiple mortgages for investment properties.
How many investment mortgages can I have?
There is no fixed limit on the number of mortgages that you can take out to invest in real estate. You’ll need to arrange for each property’s deposit amount and fulfil the lender’s requirements for each loan application to get approval. So the number of mortgages you can have depends on your financial situation.
You will also need to be cautious of not overextending yourself and taking out more mortgages than you can comfortably service without causing financial stress. Lenders will look at how much debt you have before deciding if they will offer to lend you any more funds.
How to get multiple mortgages for investment properties
When you apply for a home loan, you need to specify whether you’ll live in the property or are buying purely for investment. A loan for a house you intend to occupy is an owner-occupier loan, while if the property is an investment property you’ll need an investor loan. The interest rates for investor loans tend to be higher than those for owner-occupier loans. This is because of higher perceived risk; if borrowers face financial distress, they will prioritise the loan for the home where they reside. With investor loans, lenders are also at risk because if the property ever needs to be sold and is being rented by tenants, it may be difficult to get the tenants to vacate.
You should carefully compare the interest rates and terms offered by different lenders before finalising a mortgage for an investment property. You may be able to negotiate with the bank that has given you your previous loans or get better terms from a different lender. There is some risk in taking multiple mortgages for investment properties from the same lender. If the value of your investments fall, the lender may force you to sell multiple properties. So it may be better to take each mortgage from a different lender and linked to only one property. Speak to a financial advisor to get expert advice on how best to structure your loans.
When you apply for the loan, the lender may want to see some savings set aside to manage the repayments. For example, if you are unable to rent out the property for some time, you should still be able to make the monthly loan repayments. While assessing your loan application, the bank will consider your income and the property’s potential to earn rental income. Mortgage lenders also consider the capital appreciation forecast for that property based on its current valuation and market trends. The bank will consider all your mortgages and your ability to manage repayments before approving your home loan application with them.
You may opt for an interest-only loan for your investment property, in which the initial repayments are lower. But bear in mind that you need to be prepared for considerably higher repayments after the interest-only period ends.