Breaking down investment jargon

What do you need to consider when taking out an investment loan? We’ve put together a list of the most common terms associated with investments and their meaning to help you out.

Asset depreciation

Depreciation is the reduction in value of an asset over time, due to wear and tear. Depreciation is tax deductable over a period of years. To benefit from depreciation, you may need to talk to your accountant who may draw up a depreciation schedule for you. See your accountant or visit the Australian Tax Office website for further information.

Using equity in your existing property to purchase an investment

Equity is the value of a property, minus what you owe on it. For example, if a house is worth $450,000 and you owe $200,000, you will have equity of $250,000. You may be able to use your equity to help renovate your house or to purchase an investment.

Negative Gearing

If your outgoings on an investment are more than the income you make on the property, it is considered “negatively geared”. You may be eligible for tax advantages if you own a negatively geared investment. Talk to your accountant to find out more information.

Positive Gearing

If your income from an investment property is greater than your outgoings the investment is considered “positively geared”. The profit you make on a positively geared investment is taxable.

Investment yield

A yield is a measurement of future income on an investment. There are two types of yield - gross and net.

Rental yield – gross

This is the amount you will make via rent paid before your expenses have been deducted. It generally takes into account how much rent you receive on your property as a proportion of the property’s current market value is.

Rental yield - net

Your rental yield will be the gross yield minus anything you have spent on the property – this can include rates, repairs and rental fees. To find out exactly what expenses are included you may like to talk to your accountant. Calculating your rental yield will give you a better picture of your return on investment.

Got another tricky investment word you’re having trouble understanding? Drop us a line below!

* Home loan comparison rate based on a $150,000 loan over 25 years.  Fixed loan comparison rate applies only for loans with an LVR of 80% or less and a loan amount of $150,000 to $249,999.  WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

Interest rates are on a per annum basis. Rates are correct as stated and subject to change without notice. Rates shown are for new loans and do not apply to switches or internal refinances.

Home Advantage Variable rates include discounts shown from the Standard Variable rate. Home Advantage Living Equity rates include discounts from the Living Equity rate. Discounts are based on total lending in the package. Discount Variable LVR rates are for new lending and include discounts from the Discount Variable Loan Rate.  Discounts are not available in conjunction with any other interest rate discount or special offer. All fixed rates are fixed for the period stated and revert to the variable rate applying at expiration of the fixed term. To approved applicants only. Conditions, criteria and fees apply.

Loan to Value Ratio (LVR) is the loan amount divided by the value of your security property (determined by Heritage Bank at assessment), multiplied by 100. Owner Occupied loans have a maximum LVR of 95%, Investment loans have a maximum LVR of 80% and Living Equity has a maximum LVR of 80%. Heritage is not accepting any new investment applications until further notice.

This advice has been prepared without taking into account your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness having regard to your objectives, financial situation or needs.

Generate a personalised Key Fact Sheet based on your loan amount, term and repayments. This tool is provided to help you compare home loans from Heritage with other financial institutions.

The information provided is intended as general information only. Blogs have been prepared without taking into account your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness having regard to your objectives, financial situation or needs. You should consider obtaining personal investment, taxation and/or legal advice before making any decision.  Please consider the Guide to Heritage Deposit Products and Guide to Heritage Credit Card Products (available in-branch, or at www.heritage.com.au) before you decide whether a product is right for you. All loans and credit cards are subject to application and approval. Conditions, criteria and fees apply and are subject to change without notice.