I am currently paying off 2 morgages and in the process of taking on a third.
My house I live in I owe about 305k and valued at about 420k
My other investment is still being built so I am paying absolutely nothing on it
(it is a line of credit) letting the interest build up, coming at a loss.About to go for my loan on the third investment and have been advised to
put my home into an interest only loan.I do have an offset and I currently put away an extra $800 a month on the loan which
has been a huge driver when I go for the loans (the equity).
If I switch to interest only wouldn't that mean I am only relying on my equity as a security when I go
for loans? Doesn't this slow everything down in terms of gaining equity.
I thought the idea was to use your equity to buy other IP's?
Fairly new at this, could someone help me see the bigger here please.Packer
Hi Packer I definitely recommend I/O loans if you are building a portfolio, in fact I would even suggest having a PPR set up as I/O as well. Whats the point of paying principal now when at some stage later on you will sell one and pay out the debt entirely. Any spare funds you have you can and put into your offset ready for the next purchase.
The equity is simply the difference between the value of your overall property and debt. Paying into your offset is definitely a good idea to reduce the interest you pay and of course you have funds that you can draw down when buying another property. The equity will increase as the value of the property increases.
You will need funds to buy another property i.e. deposit and costs. You can use any spare funds you have in an offset account and/or you can set up another loan split on top of your existing loans to access the equity for use as funds to settle your next purchase.
You might want to consider keeping a safety buffer of funds available, say a spare $20k sitting in your offset.
I can send you a flow chart that will give you a visual perspective on the funding structure if you like, just shoot me an email if you would like this.
onthemoney wrote:Hi Packer I definitely recommend I/O loans if you are building a portfolio, in fact I would even suggest having a PPR set up as I/O as well. Whats the point of paying principal now when at some stage later on you will sell one and pay out the debt entirely. Any spare funds you have you can and put into your offset ready for the next purchase. The equity is simply the difference between the value of your overall property and debt. Paying into your offset is definitely a good idea to reduce the interest you pay and of course you have funds that you can draw down when buying another property. The equity will increase as the value of the property increases. You will need funds to buy another property i.e. deposit and costs. You can use any spare funds you have in an offset account and/or you can set up another loan split on top of your existing loans to access the equity for use as funds to settle your next purchase. You might want to consider keeping a safety buffer of funds available, say a spare $20k sitting in your offset. I can send you a flow chart that will give you a visual perspective on the funding structure if you like, just shoot me an email if you would like this.Thanks onthemoney,
Unfortunately I am currently away at work,so I havn't had a good chance to sit down with a calculator and crunch some numbers.
Once I have a look at your flow chart I should have a good look at how interest only will work for me.
Thanks for taking the time to help me out, I will let you know how I go.
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