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Hi,
I’ve just purchased my first investment property. I used the equity in my home ($450,000 equity) to borrow the full amount ($135,000). The loan is interest only for 3 years, the first yr being set at 5.99% variable, and the next 2 yr’s being set at the current market variable interest rate.
My questions are:
When the 3 yr period is up should I try and renegotiate the loan to another interest only period?
When the 3 yr period is up should I allow the loan to automatically revert to a P and I loan?
Is there a lender out there that has a long term interest only loan product?
I currently have a $65,000 mortgage on my own home, so if I was to allow the loan to revert to P + I, I can’t see the point in attempting to pay off what would be 2 mortgages, as I want to hold this property and any subsequent properties for the long term.
Thanks
G’day imooney,
There lies one of the many million dollar questions that can really only be answered by you…
Option 1 – Keep re-negotiating a new interest only loan when the old one expires.
Pros : interest only is cheaper repayments, and you can budget for an exact amount each month.
Cons : You never pay it back ( but in 20 years time the amount you owe will seem like peanuts compared to the actual value of the property ).Option 2 – P & I loan.
Pros : pay off P and I equals more equity sooner, which can be used for more property deposits, or beer, or whatever. You eventually own it outright.
Cons : More expensive per month. Variable interest rates change. Not exactly sure what monthly repayment will be.Suggestion : Some kind of Line Of Credit loan.
This way you can almost have the best of both worlds. You can choose how much ( or how little ) you repay per month. Be aware that Line of Credit loans require financial discipline, but can work in your favour.
Have a good one,
BDM
imooney, welcome to the forum, and congrats on your purchase.
If I were you, while ever you had a PPOR debt, I would keep the IP as interest only. Put all extra money towards the PPOR debt, and you can then reborrow it as a tax deductible loan to purchase further IPs.
You just renegotiate with your bank when the term is up, or refinance altogether to another bank.
Cheers
MelThere is no right or wrong on this, but you gotta consider just more than interest here.
You can do the interest only loan, and my accountant told me to do this. But still owe the same at 3 or 5 years end, hoping you had growth and then re neg a loan etc.
Personally I am conservative and maybe a bit skewed. I decided I prefer P and I loans, I know they are more expensive, but for me it was more a long term thing and I was considering I still have growth and I have reduction in what is owned and I claim all the interest…given that PI loans in the first years, you are repaying the most in interest etc….then I also consider this more an advantage…im talking my tax here….and my personal values. rather see it decreasing and pay more mortgage…
just personal opinion and my accountant wouldnt agree, but then thats too bad. I beleive Margeret Lomas holds the same type of thoughts on this too.
Elves
The only thing constant is change
The only difference between a weed and a flower is a judgement
Hi,
You asked about where you can get a longer term IO loan….ANZ have 1,2,3,5 and 10 year IO loans at reasonable rates..[blush2]Hey, you asked for opinions so I’ll give you mine.
I am in kinda the same boat. We have about $25-30K left to pay off our PPoR. I want to get that to zero (or within a couple of thousand to keep the facility open) as soon as possible. Both IP’s and the two I am just in the process of signing up will be IO loans. Every dollar we get goes into an offset account, so we don’t ‘save’ anyway. All expenses are put on M/C to get the 60 day interest free period.
We have the two current IP loans fixed until next year (4 & 5 year IO loans) but the next two will be variable IO at this stage.
I would keep going on the IO loan until your PPoR is paid off, then look at the scenario again. Most lenders will give you a fixed IO product, just be mindful of the rates they quote you.
CBA have a wealth package that will give you up to .7% off standard variable rates and .25% off fixed rates. You also get the platinum M/C which gives you other benefits (FF points $ for $, travel insurance etc). I think it costs about $400 as a package but could be worth looking at for you if you are ready to refinance.
Good luck
‘Eat rich food, barbeque a yuppie’ [greedy]
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