Could anyone let me know what a IO loan is and what are the benefits of using it.
I would like to purchase a property soon and i was told that IO loans are the way to go ?
Any advice would be appreciated.
Simply an IO or Interest Only loan is a loan wherby on interest repayments are made to the lender and nothing comes off the principal balance.
If you start with a $100,000 loan then in 5 years time the loan will still be $100K.
There are numerous advantages which include:
Reduced loan repayments.
Tax effectiveness when you have other non deductible debt.
Cash flow to allow you to widen your investments.
Flexibility when it comes to loan planning.Etc etc.
Hope this makes sense.
Richard Taylor | Australia's leading private lender
This is going to sound really stupid but i got mixed up, of course i know what a IO loan is.
i meant to ask what is Line Of Credit, LOC
No problems.
A LOC or Line of Credit is merely a secured loan which has an approved credit limit with interest charged on the drawn amount. It is like an overdraft with the limit normally based on the security amount.
The limit can be made up of 1 loan or a series of sub loans which can be used for different purposes.
One of the beauties with a LOC is the flexibility in that once approved you are not normally required (Varies from lender to lender) to have the limit reviewed each year and the funds can be used for any legal purpose.
Structured correctly they certainly have a place in investment and loan planning however too often are sold by loan minimisation companies as a quick way of repaying your home loan off quicker.
You just have to be careful when utilising a LOC for investment.
Richard Taylor | Australia's leading private lender
For ease of explanation I have often likened a Line of credit loan to having a credit card with a huge limit at around half the interest of a normal credit card bcause it is 'secured' against your property, and you only have to be the interest each month if you want.
Call me over simplistic, but as Richard has mentioned above, so many people are 'told' an LOC is the 'way to go' on their main homeloan for no particular reason, and they find several years indeed do go buy, and they still owe the same (or even more) than they first did!A great tool to use though when you want to 'release equity' in your property for investment (or personal too) purposes once you have made inroads on your mortgage.
All the best.
I use Interest Only loans to maintain the costs of my investment properties (i.e. rates, body corporate, etc). The beauty about the IO is that the interest charged on the IO loan "could possibly' be tax deductable (if used correctly). Check with you accoutant/financer advisor.
Chewy
Cheers guys for all your help, so lets say I’m new to investing and this would be my first IP.
Would LOC be the best option, and does anyone know if this is true ?
1. You can buy a IP and as long as you don’t live in it, you can later purchase PPOR and get FHOG
Well,
As far as I know you can only get FHOG on your first property and that property must be your PPOR. Otherwise you don't get FHOG.
Whether LOC is the best option depends on your circumstances and investment strategy. I personally don't like LOC as it is providing bells and whistles I don't need. Unless you have lots of IP that managing your normal loans is overwhelmingly confusing, it may be a good idea.
Another point though, not all LOC is the same. So you really need to know what you need and negotiate with your lender. Just incase they provide you bells and whistles for pooches and you actually need the ones for felines…. figuratively speaking.
Cheers,
CattCattleya
Here to learn the ropes of property investing & share knowledge, not trying to sell anything at all.
wdemirdonder wrote:Cheers guys for all your help, so lets say I'm new to investing and this would be my first IP. Would LOC be the best option, and does anyone know if this is true ? 1. You can buy a IP and as long as you don't live in it, you can later purchase PPOR and get FHOGDude, you're asking the same questions in 2 or 3 threads
SRO Victoria website sayd the following with regards to eligibility for FHOG…
- You and your spouse/partner must not have owned residential property, either jointly, separately or with some other person prior to 1 July 2000, in any State or Territory of Australia
- You and your spouse/partner must not have occupied for a continuous period of at least 6 months, a residential property in which either of you acquired a relevant interest on or after 1 July 2000 in any State or Territory of Australia.
So, providing you haven't owned a property prior to 01/07/2000 AND you haven't lived in a property that you do own for anything more than 6 months, you are still eligible.
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