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Top Tips When Taking Out An Investment Loan

Investment loans are your best bet when you have a current development project. For example, you may want to put up a house or commercial development. There is a wide range of considerations to make when taking out an investment loan. However, the underlying factor is that the loan should serve your needs. Below are some tips to guide you as you take out an investment loan. 

Establish The Amount You Need

A mistake that investors make is taking out a loan based on the project's estimates as opposed to relying on a quantity surveyor's, engineer's or contractor's quote. There are two dangers of relying on this approach. First, you risk taking out a smaller loan. In this case, you will not complete your project, and it might be difficult to secure additional funding at the terms of the original loan. You also risk taking on more credit than you need. As such, you will pay more for cash that you did not initially need.

Find A suitable Lender

Talk with an experienced mortgage broker and ask for a comparative analysis of the various investment loans on the market. Below are criteria to help you choose a lender: 

  • What is the maximum amount that you can borrow? If you have a mega-investment project, you may need more than one loan.
  • What collateral does the bank require? In most cases, they will need more than the title to the property.
  • How will the bank disburse the loan? Choose lenders that disburse the funds in stages as opposed to sending lump-sum amounts. It prevents you from wasting funds. Additionally, it will keep the contractor on their toes.
  • What are the interest rates? Ideally, banks should be willing to offer lower interest rates for larger loans. Regardless, your mortgage broker should negotiate these rates on your behalf. 

Calculate The Repayments

Once you take out the loan, you will be required to start making repayments on the loan. Given that you will have an ongoing project, it is reasonable to assess the repayments to establish if you can afford the loan. Various lenders have varying arrangements to ensure you do not struggle to repay the loan. For example, they could ask you to make interest-only payments until the project is complete. 

Inquire About Refinancing Arrangements

Refinancing is an essential concern when taking an investment loan. It allows you to take advantage of lower interest rates or change the repayment schedule. Besides, you can cash out the property's equity if you need urgent cash. Therefore, ensure that the lender allows you to refinance the loan in the future. 

When taking out an investment loan, establish the amount you need, find a suitable lender, calculate the repayments and inquire about refinancing. 

Reach out to a company like PINK FLAMINGO HOME LOANS to get more tips.