As a FIFO heavy diesel mechanic, you're earning solid income during your swings, but you might be wondering how to make that money work harder for you. Investment property could be your answer, and understanding fixed rate loans and offset accounts is crucial to your success.
Understanding Investment Loan Options
When you're buying an investment property, you'll access investment loan options from banks and lenders across Australia. These loans work differently from your home loan, with specific features designed for rental properties.
Investment loans typically have:
- Higher interest rates than owner-occupier loans
- Different loan to value ratio (LVR) requirements
- Specific application processes
- Various repayment structures
The loan amount you can borrow depends on your borrowing capacity, which considers your FIFO income, existing debts, and the property's rental yield potential.
Fixed Interest Rate vs Variable Interest Rate
When applying for an investment loan, you'll choose between fixed and variable interest rates. A fixed interest rate locks in your Investment Loan Interest Rate for a set period, usually 1-5 years.
Benefits of fixed rates for FIFO workers:
- Predictable repayments during your investment loan term
- Protection against rising interest rates
- Easier budgeting around your swing schedule
- Stable cash flow calculations for negative gearing benefits
Variable rates might offer interest rate discounts initially, but your repayments can change with market conditions. For FIFO workers with irregular schedules, fixed rates often provide more certainty.
How Offset Accounts Work with Investment Loans
An offset account linked to your rental property loan can significantly reduce your interest payments. Here's how it works:
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The balance in your offset account reduces the loan amount that interest is calculated on. For example, if you have a $500,000 investment loan and $50,000 in your offset account, you'll only pay interest on $450,000.
For FIFO workers, offset accounts offer several advantages:
- Park your swing earnings between expenses
- Reduce taxable investment income (less interest means less tax deductions, but more cash flow)
- Maintain liquidity for property maintenance or opportunities
- Potential tax benefits depending on how you structure the account
Calculating Investment Loan Repayments
Calculating investment loan repayments involves several factors:
- Loan amount after your deposit
- Interest rate (fixed or variable)
- Loan term (typically 25-30 years)
- Any lenders mortgage insurance (LMI) if your LVR exceeds 80%
Most FIFO workers find principal and interest repayments work well with their property investment strategy, as you're building equity while claiming interest as a tax deduction through negative gearing.
Property Types and Investment Considerations
When buying a rental property, you can choose from:
- Apartments in city centres
- Town houses in suburban areas
- Stand alone dwellings in regional locations
Each property type affects your rental yield and capital growth potential. Research property markets thoroughly, considering factors like:
- Local employment opportunities
- Infrastructure development
- Rental demand
- Stamp duty costs in your chosen state
The Investment Property Application Process
The application process for investment loans requires more documentation than standard home loans. You'll need:
- Recent bank statements (usually 3-6 months)
- FIFO employment contracts or letters
- Tax returns from previous years
- Details of the property you're purchasing
- Rental appraisal or lease agreement
Lenders assess your investment loan application based on both your income and the property's rental income potential. The streamlined application process varies between lenders, so working with a mortgage broker who understands FIFO income can help.
Building Your Investment Property Portfolio
Many FIFO workers start with their first investment property and gradually build an investment property portfolio. The equity in your initial property can help fund subsequent purchases, creating a strategy for long-term wealth building.
Key considerations for portfolio growth:
- Maintain adequate cash reserves for vacancies and repairs
- Monitor property market conditions
- Review your property investment loan features regularly
- Consider refinancing options as your portfolio grows
Fixed rate loans provide stability as you build your portfolio, while offset accounts help manage cash flow across multiple properties.
Whether you're buying your first investment property or expanding your portfolio, understanding how fixed rates and offset accounts work together can significantly impact your investment returns. The combination of predictable repayments and flexible cash management makes this strategy particularly suitable for FIFO workers.
Call one of our team or book an appointment at a time that works for you to discuss how these investment loan options can fit your FIFO lifestyle and investment goals.
