- Hi,
Pls help new starter, I need advise.
Just purchased my very first property,
Plan to stay for 6 months for FHOG then convert this to an IP.
Currently on high bracket tax income. Planning to buy PPOR in soo many years in future (unsure when i would be able to afford one).Any idea which loan would be the best for me?
Currently comparing between choosing IO loan and P&I loan (repayment only different about $17 per week).
My broker suggests to have P&I loan as the different is not much.
But as I read this forum, most people say better to choose IO and claim tax against it. Anyone could help with this?And also.. which one to choose ?
Give 5% deposit, and pay LMI (about $4500)
Or 10% deposit and pay LMI (about $2400).Would I be better off choosing IO and give minimum deposit (5%) so that I can claim more expenses?
PS: I am completely new to this investing.
What is equity exactly?
Is it the money paid back to the loan (principal) or the increase property value over years?
Would I still be able to borrow against equity if it increases (if i choose IO loan)?Thank you.
Any advise would be much appreciated.
Hi, Purple
Refer to some of the old threads. There have been a number of discussions on P&I or IO, their pro and cons.
Really depends on what is your investment strategy, if you have one. If not, best to develop a investment strategy first before moving further into IP.
Would also be good to find out the deep-seeded reasons as to why you are investing in RE in the first place.
All the best.
Daniel LeeHi Purple,
As you point out, there is not much difference in the monthly repayment between an Interest Only loan and a Principal & Interest one over 30 yrs. The tax deduction for interest paid will vary only slightly over time if you pay minimum repayments on the P & I loan
The lvr you borrow will be dictated by your circumstances. I can't think of any good argument for paying more than you have to. Most people I deal with hate paying fees & will always avoid lmi premiums if they can afford a 20% deposit. Some lenders will now go to 85% lvr before charging lmi.
Equity is the difference between what you owe & the value. Obviously you will build equity quicker if you repay principal.I agree with Phil,
if the difference between the repayments is so small, and you can easily handle the repayments, then go for the P&I loan; preferably with a good redraw or offset facility attached.
You can still claim the interest on your tax return, but you are paying down the debt and accelerating your equity for future investing.
The main factor with which loan would be which loan gives you more flexibility for repayments, redraws, offset accounts etc. The right type of loan for further investing is important.
Many I.O loans allow you to still repay some principal at will, and offer great flexibility as well, but maybe at a slightly higher interest rate. This is not necessarily a bad thing as you are planning to reduce the debt anyway, which will decrease interest payments.
If you can pay more deposit and avoid LMI I would do this – it is a waste of money and only protects the Bank – not you.
EQUITY is the portion of the property that you actually own – the difference between what it is worth and what you owe. This will increase when the property goes up in value and/or you pay down some of the debt.
Another term you will come across is the LVR or Loan To Value Ratio. This is the actual percentage of equity you have in a property or properties. It is worked out using this formula:-
Outstanding Loan balance / Property portfolio Value x 100 = LVR %
The lower it is, the healthier (or safer) your financial position is.
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