I have 2 properties worth $700000. I owe $440000 on them and have a P and I loan. Should i convert to IO. I will be living in the house shortly-I think I might leave that P and I and convert the Units to Interest only. I need some advice please
It depends on if you can still meet the payments to a P&I loan and whether or not you want to buy more property.
If you convert to an I/O loan you should be using the savings in repayments to pay down the loan on a new investment property with an I/O loan (bought in a good growth area or high yielding area). This way you will have more properties growing in equity (hopefully – if you have done your research and bought well).
If you want to sit back and consolidate I would suggest just leaving the P&I loan as is and start paying some debt down in case the market falls. This will give you a bit of a buffer.
Life is like a box of chocolates – you never know what you’re going to get!
If you are paying off principle it makes sense to pay off the most expensive debt first. If you have no other debts, this would be your PPOR. If you are going to change from your current PPOR and make it an IP, you are probably better off paying money into an account that offsets the interest on that property, and then paying that amount into the new PPOR when you move in. You should check all this with a tax your accountant.
Regards
AlistairHi,
I think of it along these lines:
1. Any spare cash you have should always be applied to your debt.
2. Applying the spare cash to your debt increases your equity.
3. Think about where you may want to draw on the equity in the future and then determine how you split the spare cash amongst them. eg if you want to draw back out for personal stuff then it would make sense to apply the cash to your PPOR. If you want to draw on it for further investing then the cash can help pay down the IP.
4. Finally, even though the finances should be kept separate, understanding how each one costs you over the term of the loan is important.Mat
I tend to agree with APerry, i.e focus on your PPOR first by paying P&I. and let the IP on IO. Once you finish off your home mortgage than you switch your focus to the next one – your IP. But if you feel comfortable to pay P&I on both, then why not.
Cheers,
hermanWell actually on second thought I agree too.
You can always redraw from your PPOR for both personal and investment needs, however you should only redraw on your IP for investment needs, otherwise it gets messy with your tax return.
Hi Mat,
You are absolutely right.
herman
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