Financing an investment property purchase is relatively straight forward, yet most first time investors get it wrong, leading to inflexibility later down the track, and added costs when buying another property. There is also the matter of putting your own home at risk (refer to my previous article).

I am going to make a couple of assumptions here, one being that you have sufficient equity in your existing home to complete the purchase as two separate loans. Often people are sold on the idea that the lender or broker will get the 105% or more of the purchase price so that there is no cash outlay by them, and to achieve this, they place both properties (their home and investment property) as security with the same bank.

The exact same thing can be achieved using two separate lenders, and depending on the equity available in the existing property, mortgage insurance payments can be avoided.

The idea is to increase your existing loan with the present lender if they have a good product to cover for a 20% deposit and your closing costs (stamp duty etc), taking care to keep this money separated from your existing balance for taxation purposes.

The balance of the funds should be sought from a separate lender, as a separate loan secured by the property being purchased. For ease of management, a direct debit should be set up from your loan on the home or first property, so that you don’t have to remember to make the payment each month, it happens automatically.

The only time one should look at going back to the same lender and putting the two properties together is when there is not enough equity to do this separately, being very clear with the risks associated, in the immediate term to your home, and on the long term to your wealth accumulation plan.