hi all,
iam planning to buy my first home( with the possibility of converting it to IP in 2-3 yrs) , and someone suggested to go for a IO loan and make extra repayments in a 100 offset account . iam trying to understand the concept of IO loans ,some of the questions are 1) when do i start paying the principal and do i have to pay it all at once. 2) is it beneficial to make extra repayments in such a situation 3) and is it possible to have a IO loan and hold on to the property for long term( approx 10-15 years) 4) any other negatives in such a situation?
its all a bit confusing
all advice is appreciated
thank you
harryHarry
Couple of answers:
1) When do i start paying the principal and do i have to pay it all at once.
No you dont have to pay at all subject to the provisions of the loan offer.
Most lenders have a maximum interest only period before they look to roll the loan over to P & I whilst others
subject to the LVR allow an Evergreen facility which means it will be IO for the term of the loan.2) Is it beneficial to make extra repayments in such a situation
This will depend on whether you have any non deductible debt but assuming NO then subject to having an
offset account (rather than the loan account) i would pay all of my income into this account to save $$$.3) Is it possible to have a IO loan and hold on to the property for long term( approx 10-15 years)
Yes subject to 1 above.4) Any other negatives in such a situation
Not as long as you are disciplined and dont spend all of the funds in the offset account on non appreciating
assets.Richard Taylor | Australia's leading private lender
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