Advice IO or PI?

Discussion in 'Loans & Mortgage Brokers' started by property world, 17th Feb, 2018.

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  1. property world

    property world Well-Known Member

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    Dear Forum

    Long time reader. Dont post as much as id like.

    Anyway im coming up to the time when i need to refix after having a mortgage for over 3 years.

    Situation: 290k Loan. With 60k Offset which i have in that account. So paying Interest against 230k ATM.

    As a goal Im potentially looking at buying with the girlfriend in 18-24 months. This would be a PPOR.

    Im yet to pay off any principle on the 290k loan. Worried how it will affect my ability to get another loan for next property.

    Should i look to be paying off some of the 290k to increase equity or should i just keep going with the IO/Offset account and keep saving against the loan. Just signed tenants for another year.

    It seems PI loans are a fair bit cheaper than IO loans ATM but then the offset would have a higher variable rate instead of the fixed rate.

    Hope ive done my best to explain situation. Would just be curious as to what people think is best.

    Regards
    PW
     
    property world, 17th Feb, 2018
    #1
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    PI with offset probably - not enough info so seek specific credit advice.
     
    Terry_w, 17th Feb, 2018
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  3. Property Twins

    Property Twins Mortgage Brokers & Buyers Agents Business Member

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    Will this existing property become an investment property? If so, makes sense to keep accumulating cash savings in the offset account.

    Often people pay down a property that will become an investment or even if it remains PPOR, paying off way more than the required repayments can mean difficulty with future equity pulls as this is governed by lender policies at the time.

    Best to keep control of your money.

    Agreed P&I is a lot cheaper... might make sense to go P&I but you will be erroding your savings whilst paying off the existing property.
     
    Property Twins, 17th Feb, 2018
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  4. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    off the cuff

    IO variable with offset until you know whats happening with the Gf and non ded new loans

    be aware too, that there are some not bad early 4s IO variable investment rates around.

    just because the spread with my lender is bad, doesnt mean its generically bad

    doesnt help if you can refi for whatever reason


    Seek specific advice though pls

    ta

    rolf
     
    Rolf Latham, 17th Feb, 2018
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  5. property world

    property world Well-Known Member

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    When people are saying please seek specific advice. What advice and where should i be going? Financial advisor? Accountant?

    Thanks
     
    property world, 17th Feb, 2018
    #5
  6. Property Twins

    Property Twins Mortgage Brokers & Buyers Agents Business Member

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    Credit
     
    Property Twins, 18th Feb, 2018
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  7. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

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    Advice from a mortgage broker. There’s a lot more to IO v P&I than meets the eye and it does require some forward planning.
     
    Jess Peletier, 18th Feb, 2018
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  8. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    A FP, in combo with an investment savvy broker might be a good option. Generally you wont find the same in the one person.

    A good FP can show and model the end effects of IO and active Debt recycling, in 15 or 25 years time.

    Your average broker, broker, accountant usually can not.


    ta
    rolf
     
    Rolf Latham, 18th Feb, 2018
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  9. Redom

    Redom Mortgage Broker Business Plus Member

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    Partly depends on the rate difference & purpose of the loan. Give intentions, IO is a good set up, but depends on the cost tradeoff. If you choose to refix, consider splitting of the loan into part fixed/part variable, so your offset continues to work.
     
    Redom, 18th Feb, 2018
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  10. Corey Batt

    Corey Batt Well-Known Member

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    Potentially a cheap IO rate with offset in the interim - you would likely pay 0.25% premium compared to P&I, so worth doing the numbers to work out what is the better pathway. Definitely the best thing overall is to get specific advice from an investment focused broker who will be able to give you much more meaningful advice into how the options will impact your future plans and what will make more sense from the short, medium and long term.
     
    Corey Batt, 19th Feb, 2018
    #10