any thoughts or additions that can enlighten me as to the benefits or otherwise of interest only loans
[biggrin] thankyou all
Hi Chookie. Interest only loans are generally used by investors, whereas owner occupiers generally prefer Principal also. Not that no one wants to pay off their home, but aside from the fact that the repayments are less, it is of no tax benefit to pay principal off your investment property, as only the interest is tax deductable. Naturally, if you have spare money, it makes sense to pay as much as that as possible off your own home instead where you cannot claim any tax deductions or offsets, and if you own it already, you will find many people split down the middle as far as what to do….Pay the extra off the principal on your ‘interest only ‘ IP loan, or use it to fund the deposit on another interest only loan? Check out some of the current crop of books, including Steve McKnights books, the latest from Cathy Jane Pearce, and you will also find Margaret Lomas has some excellent ‘loan stragegies and advice in her books too. Finally (whew) what some people advocate now is to have an interest only loan even if refinancing your principal place of residence, but pay off the principal also as if you had a P&I loan, which then serves the purpose of giving you a ‘fall back’ to interest only for a while when those rotten bills come in and you have to put fuel in your V8 (What-I thought everyone had V8’sstill?) This of course would take discipline to make sure you don;t just pay the interest and then squirt the rest instead of using it to reduce your debt when you can. Funny, a few years back before ever considering investing in property I wondered what the point was in an interest only loan….. And all the best too![strum]
Hi Guys,
Some good thoughts on interest only vs P&I loans. We have always done P&I but have been trying to get our heads around the benefits of interest only. Thanks for the reference to some authors – we will get a hold of those books. Thanks Chookie for posting this question.[thumbsupanim]
Sue
Time MattersV8 hit the nail on the head.
Pay the principal off your PPOR ONLY if you intend staying there for a long long time – if you feel that you will eventually outgrow the home and turn it into an IP then use IO with an offset account to get the best of both worlds.
Do some searches as much has been written on this topic in this forum.
Cheers,
Simon Macks
Residential and Commercial Finance Broker
***NODOC @ 7.15% to 70% LVR***
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0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
I even pay IO on my PPOR so that I achieve the best possible cashflow and this increases my servicabilty and ability to invest further. I make money faster with an extra investment property than I could if I put that extra cashflow a P & I loan to pay off the PPOR. I locked in to a fixed rate IO @ 6.29% [biggrin] a couple of years ago.
After just 4 years of property investing I could sell 2x IP’s and pay off my PPOR 25 year loan if I wanted to. But I’m not going to because my whole portfolio has just turned cashflow neutral so it costs me nothing from my own pocket to hold. The capital growth and rent rises just keep cycling. [biggrin]
Todd Burns
http://www.freepropertyhelp.com.auchookie, your answers lie in the replies so far.
Don’t forget to check out the line of credit that can really last the distance in terms of investment financing. Some LOC have the option of splitting the loan to meet your purpose, PPOR or IP. There is no need to refinance every time you find a new property to add to portfolio.
Just have to do your sums and be goal orientated… the all important delayed gratification can not be discounted.
Good luck in your research.
CT
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