Hi,
we're in the midst of building our home on a piece of land we just bought. we're claiming FHOG. We are not discounting the possibility that this may be our investment property in future. we have different opinions from brokers getting P+I and IO loan on first home property.
Any recommendations how we should structure the loan? Will be we liable to lose the FHOG rights or repay the grant otherwise?
Thanks,
DAn.Hi Dan,
In terms of structuring the loan, it doesn't matter if you take up a P+I or an IO loan, you'll be able to get the FHOG regardless.
In terms of structuring the loan, an IO loan gives you a bit more flexibility then a P+Ioan. An P+I loan would only be ideal if you want to pay off the property, and may not be disciplined enough to put in principle repayments on top of interest on an IO loan.
However, an IO with an offset account gives you alot more flexibility due to the fact that you have access to the amount of principle put in if you intend to convert this property to an IP and buy another PPOR, IP, etc.
The only thing you need to watch out for i guess is the fact that you need to have lived in the property for 6 months before converting it to an IP. Check out the FHOG FAQ http://www.sro.vic.gov.au/SRO/srowebsite.nsf/rebates_fhog_FAQ.htm for more info.
Of course, everything depends on your personal circumstances, but if you are disciplined, I would recommend a IO with offset due to flexibility it gives you (not to mention a greater buffer against interest rate rises).
Cheers,
Dean Lynch
http://www.deanlynch.com.auI would always get IO loans on all properties – you can still pay extra if you decide and then have the option to fall back to the lower repayments if needed. But it would be better to pay the extra into a 100% offset account for tax reasons.
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
It's hard to get your head around paying IO on your PPOR. It goes against the australian dream of needing to "own" your home. As terry suggests there is nothing stopping you from paying more if you desired. In the early stages the the slightly lower repayments of IO will help with your cash flow.
I suppose there is a case in not paying IO for your home. If you are a spender, you could end up spending the extra money you could have been paying off your home.
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
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