whats your opionion when it comes to p&i vs interest only loans on neg geared propertys?
have been thinking about going IO on a investment property and putting what would have been the principle payment towards my ppor as the interest is not tax deductable on ppor.
but i was thinking what if you didnt have a ppor or owned it which is better than?
with p&i your payments would be higher reducing your cashflow to invest elsewhere but on the other hand the interest you paid the bank each year would reduce. problem is with neg geared that also means the tax refund shrinks, now i understand that paying extra interest to get a tax refund means you are still losing money but when the refund shrinks the shortfall between your loan payment and the rent grows and that shortfall comes out of your pocket.
where as with IO your iterest anx tax refund stay the same(unless rates go up) so you weekly outlay dosnt alter which is rather important for us medium-lower income earners as well as lower payments due to no principle paid.
bit confused about which way to go
just wondering what people thoughts are and am i looking at this right or am i missing somethingthanks falcon
HI Falcon,
If you have non-deductoble debt then definitely go I/O on your investment loans.
If there is no non-deductible debt then it becomes a matter of what are you trying to achieve, how do you feel about a debt that doesn’t get smaller, and what is your planned exit strategy.
For me my priority is to clear the non-deductible debt and then when this is completed I will evaluate all of my options in the light of the complete investment picture at the time. Part of me at the moment is leaning towards getting rid of some parts of my LOC debts that have been used to supply deposits for various properties – the other part says stay at I/O and keep investing.
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
I agree
Just because you have an IO loan doesn’t mean you cannot pay off the principle, you are only obliged to pay the interest component each month.
Hence more flexiblity if you need a few months of reduced payments. This goes for PPOR loans too, with P&I you are reducing the available limit you can redraw back up to so why not keep your available limit as high as possible (and keep increasing with new vals) rather than go back to the bank to ask for a line increase.
Brendon
Acute Mortgage Reductions
http://www.acutemr.com.au
[email protected]
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