Hi all,
I am currently in the process of getting an FHOG and would like to move out of it in 6 month's time (go to renting) to convert it to an IP.
From a financial perspective, I'm not too sure which type of loans would be most suitable since it'll be an IP in 6 month's time. Like having an offset account is that important? Or having the option of an interest or principle & interest that important? I'm considering between an online broker such as myrate or onedirect vs one that offers a professional package (which naturally means there'll be fees involved as well as a slightly higher interest rate).
Considering the following I've set for myself, what and which type of home loans should I look for?
– I want to buy & hold for long term.
– it will be negative gearing (unfortunately).
– I want to get another IP thereafter in another 1-2 year's time, hopefully either building off the equity by then or getting a low-doc loan.Also,
– from a refinancing perspective, is there any thing I should look out for in each of these types of loans?
– I would like to repay more than the minimum amount required each month, is this advisable since i'm going to convert it to an IP?This may have been answered in some form or another but I couldn't find it in the forums.
Anyway hope to be in here long term and to learn about property investing!
I am of the impression you must reside in the property for the first 12 months as a condition of FHOG?
Not too sure about the other states, but from my limited understanding for NSW as long as I stay a minimum of 6 months within 12 months of the purchase of the property I can claim using FHOG.
Hi
I would suggest you get an interest only loan since you are planning to rent it out. Having a 100% offset account attached would be great as you could still save interest without paying the loan down.
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
Hi Terry,
What I don't understand is if I'm planning to buy & hold it for the long term, shouldn't I be trying to pay off the principle instead of just paying interest only?
Also, is it considered counter-productive since I'm negative gearing to claim tax benefits incurred through interest etc and on the other hand to have an 100% offset account to save interest?
Thanks for any help you can offer.
Hi Bacon
There is no right way to do it, whatever you feel comfortable with is the way to go. But I like an IO for a few reasons:
-with an IO loan you can reduce your repayments enabling you to service more investments
– Keeps your loan balance high so can claim more deductions
– Can also save interest by putting money into an offset and then not lose your deductibility if you take the cash out for personal expenses (which you would if you had paid down the loan).Putting money in an offset will reduce your tax deductions, putting the money in an offset on a PPOR would be ideal. you could place the spare cash in an ING account, but then you would have to pay more tax on the interest. Not sure which would work out better if you did not have a PPOR mortgage.
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
Terry, thanks. Now I know why financial institutions charge you for the offset account. My main reason for going with a basic no frills home loan is to save on the monthly account or servicing fees such as those incurred with a professional package account.
Unfortunately, I'm not able to find a free offset account so I'll most probably stick with an online one such as onedirect.
Thanks for the above information.
baconballs
There are a few fee free offset accounts floating around but maybe not at the sort of interest rate you are wanting to pay.
Look very careful at the small print with some of the online lenders as refinancing these institutions would have to be one of my business jobs at the moment.
What starts off sounding really encouraging doesnt always turn out that way.
Richard Taylor | Australia's leading private lender
True, I see free offset with even higher interest but that negates the advantage of low to zero fees.
So far, I'm tending to go with a big bank because of the flexibility and also I have intentions of getting an IP in the next year or so. I'm trying to negotiate waiver of the annual fees associated with such packages but it seem really hard as the bank is not willing to budge.
Unless your loan is over $1M they will not budge.
Bigger loan bigger negotiation power.
Richard Taylor | Australia's leading private lender
So what everyone is saying is that you must pay for the offset account with a fee? I thought it was a free account?
can someone explain why. Also Terry if you have a debt on your PPOR and you were going to live there for a few years, are you saying that not paying that off would be a good idea? If you don't pay down the loan you will pay higher repayments on interest. Don't you think that paying down the non-deductible debt would be better. Then redraw out and then use for Investment would be deductible.
Post
In most cases it is a fee free account.
In regard sto the comment about paying own the PPOR loan circumstances change and the home of your dreams today could be an investment property in years to come.
An IO loan gives you flexibility of choice as your circumstances change and costs you no more.
The additional savings can be used to invest further.
Richard Taylor | Australia's leading private lender
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