250k CASH !!!! WHAT TO DO WITH IT ?

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Ash88
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@ash88
Join Date: 2011
Post Count: 16
September 1, 2011 - 11:23 pm
HI JacM .. thanks for the reply … can I request you to Simplify with an example How a P & I loan and and IO loan have the SAME end results and how youre always better off with a IO loan …? Also what woudl happen if I took out all the money from the offset account what effect would that have on the Loan ?
And lastly , the interest only loan that I can find are 7 years max and then you pay off the principal .. does that mean only after 7 years of paying interest you start a new loan which will be P & I this time cause the interest only loan period finished or I have to pay the principal straight away … ?
Thank you kindly in advance… Apologies if the questions were dumb…
N@than
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@n-than
Join Date: 2010
Post Count: 241
September 2, 2011 - 5:43 am
Hi Ash,
Abit of an example…
P&I Loan: 300k for your your current PPOR. After 2 years you have paid 50k of the principal so your current loan is 250k, and you will be charged interest on this amount. Say now you decide you want a bigger better house and want to rent out the current one, you withdraw your 50k in equity to use as your deposit on your new PPOR. Your original loan is now back to 300k however the interest on this is not tax deductible because you have withdrawn the money for personal use. You now have alot of non tax deductible debt with your original loan and your loan for your new PPOR.
IO Loan: 300K for your current PPOR. Your repayments for this will be lower however if you are disciplined and pay what you would be paying for a P&I and put the extra into an offset account then as above you would have 50K in your offset account after say 2 years. Your loan amount is still 300k but you have 50k in an offset so you are only being charged interest on 250k. Exactly the same as P&I scenario. However now when you decide to upgrade or move PPOR you can withdraw that 50k from your offset and use it as a deposit on your new place and because it was just money sitting in an account you aren't actually redrawing from the original loan unlike in the above scenario. Now when you rent your old place out that full 300k will be tax deductible! Which means more money in your pocket come tax time!
This is a very simple example but hopefully will allow you to get your head around it.
Hope it helps,
Nathan
Ash88
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@ash88
Join Date: 2011
Post Count: 16
September 2, 2011 - 11:21 am
HI Nathan … How are you ? First of all let me tell you my mums become a Big fan of yours after I showed her this forum. , .. and has started to bend towards getting a IO loan instead of a full P and I …. your example explains things very clearly thanks for that…
Could you explain me as well that the interest only loan that I can find are 7 years max and then you pay off the principal .. does that mean only after 7 years of paying interest you start a new loan which will be P & I this time cause the interest only loan period finished or I have to pay the principal straight away … ?
Many thanks for your time
N@than
Participant
@n-than
Join Date: 2010
Post Count: 241
September 2, 2011 - 11:58 am
Hi Ash
I am good thanks. haha glad to hear about your mum and glad I could help.
I wish I knew this before I bought my PPOR but I guess it is all a gradual learning curve and will now know for the future!
As for your question I am not 100% sure but my understanding is that come the end of the interest only period you can choose to re extend it for another 7 or so years and then again after that and so on. I could be wrong. I am only pretty new to the whole property investing thing myself. Judging by the 88 in your name I am assuming we are the same age.
There are quite a few very experienced guys on this thread so hopefully they can answer your question in regards to that.
I am quite interested to know myself.
Cheers,
Nathan
Terryw
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@terryw
Join Date: 2001
Post Count: 16,213
September 2, 2011 - 1:00 pm
Generally loans revert to PI after the IO period expires. So if you have a 30 year loan with 10 years of IO it will be 20 years PI after year 10. Some banks may offer you to extend the IO period, others will make you supply new payslips etc (ANZ).
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
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Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Ash88
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@ash88
Join Date: 2011
Post Count: 16
September 12, 2011 - 4:30 am
HI … A silly question … if I take out a 300k loan IO … 100k deposit… and put 200k in offset account.. will tehre still be Monthly payment to pay or because principal balance and offset balance is same it mean no monthly payments ?
Jacqui Middleton
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@jacm
Join Date: 2009
Post Count: 2,539
September 12, 2011 - 8:01 am
Ash88 wrote:
HI … A silly question … if I take out a 300k loan IO … 100k deposit… and put 200k in offset account.. will tehre still be Monthly payment to pay or because principal balance and offset balance is same it mean no monthly payments ?
Hi Ash,
Not quite. If you pay a deposit of $100k on a property worth $400k and thus take out a $300k loan, then the debt is $300k, and interest will be calculated on $300k. If you have $200k in the offset account, then interest will be payable on $100k (which is $300k – $200k = $100k).

However. If what you mean is: hey if I have a loan debt of $200k and there is $200k in my offset account, will any interest be payable? Then the answer is no, there will be no interest payable. Remember of course the bank might still charge you some kind of annual or monthly loan fee depending on your loan arrangements.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
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VIC Buyers' Agents for investors, home buyers & SMSFs.