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Is your investment property a negatively geared property

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Reference no: EM133270396

Financing an income-producing [investment] residential property

Assume that you intend to invest in an income-producing apartment in Melbourne which is at a market value of AUD 600,000. You also have AUD 50,000 in your savings account. You are now searching for the best financing option to facilitate your investment decision. The loan amount can be borrowed from any Australian financial institution that provides home loans. Assume that the loan term is 30 years.

Imagine that you are married with one child under ten years old. You are self-employed and your annual income is AUD 250,000 (before tax). Your partner is not working. Your cost of living is in the average range for a family of three in Melbourne. You are currently paying AUD 3,500 monthly repayment for the mortgage of the house that you are currently living in. Imagine that you have a car loan with an annual repayment of AUD 4,000. You also have a small business loan with an annual repayment of AUD 4,000. You have no other debt.

You are required to answer the following questions:

Question 1. Choose two financial institutions in Australia for this purpose. What types of home loans do the selected financial institutions offer to property investors? Explain the details of all options (e.g., fixed interest rate, variable interest rate, offset account, package fee, redraws, additional payment, split loan) for the property investors. Briefly explain what the risks (costs) and benefits of these options are for you in the short run and long run.

Question 2. Based on your comparison of two selected financial institutions, which financial institution would you borrow from and why? Provide your calculations for each of the two home loans and show the details on the payable total interest (for 30 years), annual interest (for each year over the next 30 year), and the monthly payment. Please attach the calculations at the end of your assignment. It is not included in the word count.

Question 3. Imagine you rent the property for AUD 1,400 per month. Can this property's rental income cover your mortgage repayments and other costs? Show your calculations to answer this question. Is your investment property a negatively geared property? Briefly explain.

Reference no: EM133270396

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