I have just been talking to a Finance Broker about buying our first unit. We are going to spend between $400-500,000. I said to him that we would go IO and he recommended against it. He said that he has had other people before me borrow $400,000 then 3 years later when they are still there they have to change to P & I and they are still at the start.
Notice I said “have to”. He told me that it is really hard to get an IO loan for long periods and you eventually have to go P&I. Is this true? I thought you could go IO as long as you want? I said I would rather have the $100 pw difference to put toward my next investment which he said is fine “short term” but lenders don’t like IO loans on your principal place of residence and eventually I will have trouble finding a lender.
Help!!!
Scotty
What a load of rubbish – i would be ditching him NOW.
Without knowing all of your details I would suggest that you consider an interest only loan and link it to a 100% offset account.
If you decide to move and want to retain the property and rent it out you will be able to claim the full interest on the original loan as a deduction and have the flexibility of switching the offset account to the next PPOR.
Many lenders limit the initial interest only period to 5 / 10 years and then review it subject to the conduct of the account.
I guess 1 downside would be that if the loan is > than 80% LVR then the LMI premium maybe more expensive under an IO loan rather than P & I.
Shop around and see what you can find.
Cheers
Richard Taylor
Residential & Commercial Finance Broker.
Licensed Financial Planner. Ph: 07 3720 1888
[email protected]
Looking for life cover – We Guarantee to beat any quote you have in writing.Richard Taylor | Australia's leading private lender
I agree with Richard!
Terryw
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Hi Scott,
I’m a mortgage broker and I have just purchased my principle place of residence. I decided on I/O with an offset account. I prefer the idea of having my savings acting like the principle repayments, yet not locked away. Like you, I want to build up my savings for my next investment.
I have never had an issue with a lender knocking back an I/O for owner occupied? There are I/O loans on my panel up to 15 years!
Perhaps you need to chat with another broker? Second or third opinions are always handy!
Cheers [biggrin]This is very interesting.
I found a place last week that I can’t afford right now, but will be able to afford by this time next year.
A short (1-2 year) IO loan that then becomes PL looks like it wouldn’t add too much to the eventual total (well, it’s not an insignificant amount, but it’s not an end-of-the-world sort of value).
Yet another variable to throw into the calculations.
Originally posted by ScottyTav:I have just been talking to a Finance Broker about buying our first unit. We are going to spend between $400-500,000. I said to him that we would go IO and he recommended against it. He said that he has had other people before me borrow $400,000 then 3 years later when they are still there they have to change to P & I and they are still at the start.
Notice I said “have to”. He told me that it is really hard to get an IO loan for long periods and you eventually have to go P&I. Is this true? I thought you could go IO as long as you want? I said I would rather have the $100 pw difference to put toward my next investment which he said is fine “short term” but lenders don’t like IO loans on your principal place of residence and eventually I will have trouble finding a lender.
Help!!!
First thing – $500k is a lot to tie up in one property where if the tenant leaves and you can’t find another quickly you are in a bit of trouble with repayments (unless your salary is a squillion).
You will get far better rent returns with 3 or 4 (or more?) properties totalling the same amount, and the risk is spread. It is very unlikely that you will have all properties vacant at the same time.
Second, we have a line of credit on our PPoR which is split into 2 sub-accounts. One is for personal use and has a small limit, the other is for investment and has a larger limit. It makes accounting easy too. We only pay interest on the funds we actually use and there is no time frame on it as far as repaying the loan. We have had it in place for several years now and it works great.Cheers,
Marc.
[email protected]We have to spend 4-500,000. We need to buy a place to live in near the city for a while unfortunately…
Originally posted by ScottyTav:We have to spend 4-500,000. We need to buy a place to live in near the city for a while unfortunately…
sorry, I mis-understood. I thought the unit you were looking to buy was an I.P.
Even so, it must be very good to spend that much on it. That’s a lot of money for anyone to spend on their first property – especially a unit with limited land value.
You’re braver, richer, or more spendthrift than I.
good luck.Cheers,
Marc.
[email protected]
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