Hi guys
I am trying to decide on what loan will best suit my circumstances but am finding it hard to decide?
This is my background. I am 28, employed fulltime, earn over $100k per year and am looking to buy my first home. The plan is to live in the home for at least two years and during the time ensure the property is transformed into a desirable rental property with a view to renting it out. I would like to pay more off the home loan that what will be the minimum payment with a view to then using the equity generated over the two years to finance a second home.
How would you advise that I go? Would you advise me to get an IO only loan? or PI? This is a pretty big decision for me and is not one I want to rush into….
I have 40k in the bank in savings and would be looking to secure a property in the region of 375-450k on the Lower North Shore of Sydney.
Thanks
Darren
Hi Darren
Personally i would look at an interest only loan with 100% offset account and place your salary and any other income into the offset account to reduce the interest cost whilst the property is your principal place.
If you elect to rent the property out down the track and buy again you can always remove the offset funds and use these for your new purchase.
Flexibility is the key when planning ahead.
Richard Taylor | Australia's leading private lender
Hi Richard
Thanks for the advice.
My broker however seems intent on taking me down the PI path. I have explained that I intend to live in the property for the two years with a view then to maybe renting it out, this is however only a maybe depending on personal circumstances and what happens over the next 2 years.
As I mentioned I am keen to get on the property ladder, I just want to be sure that I am making the right choice.
I want to have as many options as possible in two years time and don't want to be caught up in a loan that ties me with limited flexibility.
Are you able to explain why you would go with IO as opposed to PI? and who do you recommend using of late for loans for first home buyers? Lots of people are suggesting St George to me?
Thanks for your help
Darren
Hi Darren
Flexibility is the key and therefore why would you want to pay off the principal when you might 1 day rent the property out.
If you redraw the principal payments you have made back during the time when you are living in the property the interest becomes non tax deductible so to me i can see NO reason why you would do so.
St George Spring special looks good on paper but there are a lot of negatives. Most borrowers merely look at the bottom line interest rate and clearty have no understanding on the other fees and charges. The other thing is the Banks underwriting terms at the moment are clearly not the best.
There is no set lender as each client is different and would need a little more hard data to make any recommendation.
Richard Taylor | Australia's leading private lender
Hi Richard
As I mentioned I am pretty new to all of this…
What else would you require in terms of hard data? I will try to give you as much as I can below, please feel free to comment or request whatever I do not provide
PERSONAL
=======================– 28 yrs
– $100k+ PA
– no family commitments
– secure job (I hope)
– pay rise of at least 2.5% PAWHAT I AM LOOKING FOR
=======================– flexible mortgage
– view to living in my first property for two years with a view to renting this out after this time
– save as much cash a possible in the meantime, into savings or offset account
– put any additional income (annual bonus, etc) into this account
– purchase a second property in two years with a view to renting either the first or second property out and living in one of them (not sure which yet will reassess in two years time)
– look to secure a potential third property if I can secure a long term rent on one of the above propertiesI hope this is ok? Anything else you require?
Thanks
Darren
Oh and I would like my first property to be on the Lower North Shore of Sydney. I am looking at buying in December.. or considering later once the FHOG has passed… still not sure when exactly to enter the market? I am happy to hold off until Feb/March to save more of a deposit. If I do I envisage having around 50k for a deposit.
I will be looking to purchase a property for between $375-430k.
Thanks
Darren
Hi Darren
Probably a couple of lenders i can think of which would meet you requirements but wouldn't list them on a public forum.
Richard Taylor | Australia's leading private lender
Hi Richard
Can you email them to me? If I email you email address above?
Thanks
Darren
I agree, IO with 100% offset – don't pay it down as it will be an investment
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
Qlds007 wrote:Hi DarrenFlexibility is the key and therefore why would you want to pay off the principal when you might 1 day rent the property out.
If you redraw the principal payments you have made back during the time when you are living in the property the interest becomes non tax deductible so to me i can see NO reason why you would do so.
St George Spring special looks good on paper but there are a lot of negatives. Most borrowers merely look at the bottom line interest rate and clearty have no understanding on the other fees and charges. The other thing is the Banks underwriting terms at the moment are clearly not the best.
There is no set lender as each client is different and would need a little more hard data to make any recommendation.
I'm living in a townhouse which I bought a couple of years ago using a principal & interest loan. I'm looking at renting it out as an investment property down the track and will be buying another house to live in. Can you please explain more about why the interest becomes non-tax deductible if you redraw the principal payments? Should I change the loan to an interest only loan? Which lenders can you recommend?
Change the loan to IO asap.
Every withdrawal from a loan is new borrowings – so the interest will only be deduction if the new borrowings were used for investment purposes.
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,
Thanks for that. Should I withdraw any extra repayments and put that into an offset account when I change to IO laon? Can you recommend any lenders?
Thanks
LuciaWhat is the difference between using the equity and increasing the loan amount if it makes any sense?
omiy wrote:Hi Terry,Thanks for that. Should I withdraw any extra repayments and put that into an offset account when I change to IO laon? Can you recommend any lenders?
Thanks
LuciaWithdrawing funds = borrowing. So it you borrow to invest in an offset account you will not have a reason to claim the interest on this new borrowing.
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,
I am also in a similar situation.
I have PPOR worth about $350K and I owe $150K.
I have an offset account but I have transferred much of the amount in offset account to home loan account (I&P), about $100K.
There is almost $120K redrawable amount.
So, If I want to buy an IP and after 2 years make it PPOR and make current PPOR an IP,how should I structure?I am trying to explian what I understand as below. Hope it makes sense.
Should I redraw all redrawable amount from current home loan account ( account
to offset account (account A), make the current home loan IO (ac and then buy IP with 20% deposit with a new 80% IO investment loan(ac D) with an offset account(ac C). I will be claiming tax deductaible interest on ac D for 2 years.And after 2 years (when I make IP my PPOR and my PPOR an IP), If I transfer all funds in ac A to ac C , Can I claim the interest on ac B as tax deductible ?
Thank you for any suggestion and advice.
Hi Wannabe
Wow sounds like a real mess. More information is required to make a valued comment but i think a little unravelling is required.
Doesnt sound to me like it has been set up correctly in the first place.
Richard Taylor | Australia's leading private lender
Duplicated
Richard Taylor | Australia's leading private lender
WannaBeInvestor wrote:Hi Terry,I am also in a similar situation.
I have PPOR worth about $350K and I owe $150K.
I have an offset account but I have transferred much of the amount in offset account to home loan account (I&P), about $100K.
There is almost $120K redrawable amount.
So, If I want to buy an IP and after 2 years make it PPOR and make current PPOR an IP,how should I structure?I am trying to explian what I understand as below. Hope it makes sense.
Should I redraw all redrawable amount from current home loan account ( account
to offset account (account A), make the current home loan IO (ac and then buy IP with 20% deposit with a new 80% IO investment loan(ac D) with an offset account(ac C). I will be claiming tax deductaible interest on ac D for 2 years.And after 2 years (when I make IP my PPOR and my PPOR an IP), If I transfer all funds in ac A to ac C , Can I claim the interest on ac B as tax deductible ?
Thank you for any suggestion and advice.
Withdrawing money from an account won't help at all unless the money is used to purchase investment assets or pay investment expenses. Shuffling money around won't help.
You will need to see a tax advisor I think. You should immediately stop paying any extra off the loan and change to IO. You may be able to set up another LOC and use that to pay the interest – which will help the loan increase and hence your deductions. but you had better get some advice.
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
Thank you for your comments Richard and Terry.
I will try to clean this mess up and get some advice from a good tax adviser.Thank you very much.
Thank you for your comments Richard and Terry.
I will try to clean this mess up and get some advice from a good tax adviser.Thank you very much.
to offset account (account A), make the current home loan IO (ac You must be logged in to reply to this topic. If you don't have an account, you can register here.
