First IP

Viewing 5 posts - 1 through 5 (of 5 total)

Flashkick
Member
@flashkick
Join Date: 2012
Post Count: 2
June 21, 2012 - 7:24 am
Hi everyone, I’ve been reading through these forums and just wanted some clarification in regards to what you think my best option is.
24 yrs old.
Bought first IP 3 months ago for 370K
Claimed PPOR, plan to live here for another 3 – 5 months then move back with parents.
Salary 64k base pa.
100% offset with P&I repayments, living off credit cards and paying them off full by due date.
The mortgage broker suggested once the property becomes a IP i should change my loan to IO.
I understand that there is tax benefits regarding this. My only problem is that i’ll be living with my parents and not have a whole bunch of living expenses and can afford extra repayments. Isn’t the idea to pay off the loan as fast as you can?
However, i don’t see myself living with my parents forever and maybe purchasing something with my girlfriend 4 -5 years later down the track. So it would make sense to have as much money as possible in my offset to use for my next purchase right? But if i do, how do i reduce the interest paid on my initial IP? Or is the whole idea to pay as much interest as you can for as long as you can? And i haven’t paid much off of my first loan, how could the bank let me borrow more?
Sorry if I’ve rambled too much, just a little confused with the whole set up.
What do you recommend?
Thanks everyone!
Jamie Moore
Participant
@jamie-m
Join Date: 2010
Post Count: 5,069
June 21, 2012 - 9:06 am
Flashkick wrote:
The mortgage broker suggested once the property becomes a IP i should change my loan to IO. I understand that there is tax benefits regarding this.
Hiya
Not good advice.
The loan should be set up as interest only with an offset now. Instead of paying down the principle – place the would be principle repayments into your offset account. This way, you're not paying down the principle (which is future deductible debt) but you're achieving the same outcome.
I wrote an article for Australian Property Investor magazine on this topic here.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone Me
Mortgage Broker assisting clients Australia wide Email: [email protected]
mattsta
Participant
@mattsta
Join Date: 2011
Post Count: 604
June 25, 2012 - 12:45 pm
what do you mean by you've been living off your credit cards??
have you been paying off your loan via your credit card?
Flashkick
Member
@flashkick
Join Date: 2012
Post Count: 2
July 10, 2012 - 6:01 am
No, i’m paying off my CC and loan once a month to maximize the amount in my offset account. Living off my CC so there a no transactions out of my offset.
So if i plan of living at home back with my parents i should still change it to IO so i have money ready to go in my offset for my next purchase?
NHG
Member
@nhg
Join Date: 2010
Post Count: 198
July 10, 2012 - 6:40 am
Hey,
Is it not IO already? Yes the idea is to have it set up as IO with an O/S account from the start.
Placing your extra cash in an O/S account functions the same way paying down principal would, and as stated above, reduces your interest repayments in the meantime, leaves you with less hassles when you want to invest in IP#2 etc down the track. (It's easier to pull out, all principal is left as tax deductible debt etc.)
Living off CC and paying them off by DD to maximise funds in O/S is good, not spending the money in the first place is better