Been searching and i have found my first property which i beleive can be turned into a passive income deal,as i am very green in the area of loans in that this will be my first.
just some thoughts on setting up loan repayments on Principal &interest or interest only.
Thanks[blink]Why not use IO? Your payments will be lower, and allow you to invest elsewhere. If you have spare cash, you can always put it into the loan at your own discretion.
Couple this IO loan with a 100% offset account and it will be even better.
Terryw
Discover Home Loans
Parramatta
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Let me elaborate.
IO = Interest Only
100% offset account is a savings account linked to the loan. Money in the savings account is offset against the loan saving you interest.
eg. if you had a loan of $100,000 and $10,000 in the savings account, you would only be paying interest on $90,000 of the loan.
So having a 100% offset account and paying extra money in there would be the same as paying the money off the loan – same in terms of interest charged.
But there is one important difference. If you pay off an investment loan and redraw some money for non-investment purposes, then the extra interest on this withdrawal will not be deductible. Whereas if you were using a IO loan with offset, it would. This is because no money is paid off the loan, so withdrawing from the savings account will not be new borrowings.
But…. You will need to be discliplined. If you see all that extra cash sitting in a savings account, some people would be more inclined to spend it.
Terryw
Discover Home Loans
Parramatta
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Go the interest only – as Terry says it can make a considerable difference to your outgoings.
Mind you the right direction wil ultimately come back to your final plans with this (and other) property.
Derek
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http://www.pis.theinvestorsclub.com.au
0409 882 958
Skype – derekjones2113Thanks for that advice . I have plenty more Questions so i will be back. Thankyou all[biggrin]
Keep em coming Peter!
Terryw
Discover Home Loans
Parramatta
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Just send me a blank email, with “subscribe†in subject line.Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hey There,
Interest only is a good way to go … and also Fixed interest to lock in those profits instead of wiping them out with a simple interest rise (such as the .25% one australia has just received).
Although you can reduce the loan withing the fixed structure by an agreed percentate every year and also can pay back the LMI (Loan Mortgage Insurance) with no charge to you. Even if it was only 5% per year without incuring fees … thisis 25% of the principal over 5 years… and if you get 25% capital gain …that gives you 50% ownership!!!
Cheers
Kiwi [biggrin]
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