Hi All,
Need some kind clarifications
Loan = $300K
Interest = 5%
Years = 30
Basic Loan from St George. Lender allows additional payments.Principal & Interest (P&I) monthly repayment = $1,610.46
Interest (I) Only monthly repayment = $1,250
Differences between "P&I" and "I" = $360.46Is it true if i go for "I" loan and do extra repayments $360.46/mth. It will become exactly same as "P&I" loan?
My broker suggested doing this way, as it gives me much flexibility. Any other hidden stuff i need to look out for?
Cheers
NitI would suggest IO too. but it won't really work out the same if yu pay $360 pw extra as your loan will progressively be decreasing so the interest will be decreasing. if you want to pay it off like a PI loan you should pay the same $1610.46 each month.
But, a better way would be to use the 100% offset and put your money in there. This should save even more interest as your lazy cash will be sitting there waiting to be used and saving you interest as well.
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
Terryw wrote:I would suggest IO too. but it won't really work out the same if yu pay $360 pw extra as your loan will progressively be decreasing so the interest will be decreasing. if you want to pay it off like a PI loan you should pay the same $1610.46 each month.
Not going for the PI loan now, as i prefer flexibility, if i have more cash, i will do extra repayments.
So theoretically and technically does it works the same
'IO' ($1,250) + Extra Repayments ($360.46) = 'PI' ($1,610.46)
Terryw wrote:But, a better way would be to use the 100% offset and put your money in there. This should save even more interest as your lazy cash will be sitting there waiting to be used and saving you interest as well.Thanks Terry, i am going for basic home loan, thus w/o the offset feature.
Cheers
NitI am with Terry why would you go with the Base rate loan when you can go Interest only with the offset account.
It is ot that the interest rate is that good.
Wouldnt be making any extra loan repayments off the principal unless you intend to live in the property for ever and a day as redrawn funds may cause you a problem if the property ever becomes an investment property and the funds were for personal purposes.
Richard Taylor | Australia's leading private lender
Qlds007 wrote:I am with Terry why would you go with the Base rate loan when you can go Interest only with the offset account.It is ot that the interest rate is that good.
Wouldnt be making any extra loan repayments off the principal unless you intend to live in the property for ever and a day as redrawn funds may cause you a problem if the property ever becomes an investment property and the funds were for personal purposes.
Hi Richard,
I am looking at 1-2 years for this basic home loan, afterwhich i will be going overseas to work. Once my income is sourced from overseas, i will convert the basic home loan to the foreign currency home loan, with a lower interest rate. Of course there is a risk of currency fluctuation, where i have to top up.
So during the 1-2 years when i am still residing, should i make any extra repayments? It will become an investment property once i go overseas to work, and convert it to foreign currency home loan.
Thanks for your help once again.
Cheers
NitHi, you need to really pay attention to the 2 who suggest the same thing & here is a 3rd suggesting the same.
It seems that you don't know the full benefits of an offset account. What it allows you to do is to deposit whatever excess funds you have in a savings account & it automatically gets the interest at the rate of your mortgage. Your loan amount remains the same. This is very impt to you when you move overseas as the interest on the loan will then become tax deductible, even more so when you take on a low interest foreign currency loan. Your rental income will be taxed from the 1st dollar.
The loan amount is the determining factor in tax deductibility. You want to have as high a loan as you can.
Eg $300000 house renting @$300 pw on a forex loan of 2%, the interest = $6000
That leaves you with a tax bill of about 7-8 thousand on which you'll pay full tax.
I was in the same position once. I decided to take another loan to buy another house so that it zerorised the income from the 1st house. There weren't any offset accounts then. I knew nothing about property investing, just thought it stupid to work my guts out for a house only to have half the rent taken away by tax.
That was the start of it all & today I live on rents.
Do yourself a favour. Check the offset accounts. And if you can, borrow 105%, even if you have the deposit. Put the deposit in the offset account.
KY
Hi Guys,
Really thanks for all these guidance.
In fact, i am thinking to get a 2nd IP, will start looking into offset accounts.
Btw, is the rental income taxed @ 50%, something similar to CGT?
Cheers
Nitnitrodrops wrote:Btw, is the rental income taxed @ 50%, something similar to CGT?
Cheers
NitRental income is taxed at your marginal tax rate, the same as salary income etc.
Capital Gains are also assessed at your marginal rate, but if you have had the investment for over 12 months, you only pay tax on 50% ofthe Capital Gain.
Dan42 wrote:nitrodrops wrote:Btw, is the rental income taxed @ 50%, something similar to CGT?
Cheers
NitRental income is taxed at your marginal tax rate, the same as salary income etc.
Capital Gains are also assessed at your marginal rate, but if you have had the investment for over 12 months, you only pay tax on 50% ofthe Capital Gain.
Thnx dude.
Hi
if your going OS you need to think about what is the best option, it may be better to be a non-resident in Aus (whilst OS). So I would suggest you speak to your accountant/fin advisor etc.. and lay out your plans so you can pick the best option for now and the future.
cheers
Matt
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