Best IO rates

A property has an IO mortgage with ANZ of 4.30%. Cashflow precludes P&I at present. I'm seeking a better rate. Most of the comparison and bank websites are not useful. State Custodians
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may be an option. Can anyone suggest a better rate than 4.30%? TIA.

 

That's a pretty good rate.. I'm on 4.89%

 

I'd be pretty happy with Inv IO var of 4.30%
I've only seen competitive rates for Inv IO fixed: Best interest rates in the market atm!

CBA told me they can drop IO 2 yr fixed if it's Interest in Advance for 3.99% or 4.09% for 3 yr fixed. If you want to do a split, I guess it can work well.

 

Lately Anz have been doing better. I got 1.7% off the last pricing I did with them. From memory total lending was close to a mil. Worthwhile asking for updated pricing from your broker or banker.

 

Thanks. Fixed has never worked out for me. Maybe split could work. Need to think about this. With nothing much better tehre's limited leverage to get ANZ to go lower.

 

I've got 4.07% on my only remaining I/O loan. I cheated though. I fixed for 5 years a few years ago just as all the repricing was starting up. Historically I've had some wins and some losses with fixed rates. This one is definitely a serious win though!

If I look at a cross section of lenders, variable I/O investment rates would be somewhere between 4.5% and 5.0% depending on the lender, loan amount, LVR. There are a couple of deals that are quite a bit lower if you've got the right mix of circumstances though.

 

got a 1.65% discount off SVR for under $500k loan last week. not bad outcome for client.

 

I should keep an eye out for some good deals then - queation-is it attractive for a bank if 1 wants to change the whole prop portfolio loans from 1 to another? (economy of scale helps to get bettdr rate or no?)

 

Somehow I was able to get 4.20% with my current lender. They were giving me Inv IO Var of 4.89% only 9 months ago. I switched to Inv P&I Var which brought me to 4.44% then 3 months ago I asked them if they could do a better rate as I was shopping around. They dropped me to 4.08% (Inv P&I Var) which I think is pretty great. I have an offset which is currently paying down the principal (I have no non-deductible debt) but I asked them if I wanted to flip back to Inv IO Var what could they give me. Apparently 4.20% and no re-assessment as I was previously IO within a year. A $200 fee to switch back.

Now I'm deciding whether to go back to IO and focus on building my offset or continue paying down principal since it's a good rate. If I wanted to borrow again in the future, does more principal being paid down (less deductible debt) or more cash banked up give favourable results for borrowing power?
@Redom I'm probably looking at you for those stats

 

Lower principle balance = better for borrowing power. Debt reduction helps borrowing power. Theoritically, reducing investment debt by $1 should increase investment borrowing by $1. This then gets ‘multiplied/extrapolated’ as the new investment debt generally means an income increase too (rental income).

Having funds in offset doesn’t reduce debt limits, so it doesn’t improve borrowing power. It helps risk management, having access to funds and potentially providing larger deposits.

 

Thanks. So if my goal is to further my portfolio, start paying down investment debt but if I want to keep my options open, say, upgrading my PPOR, having a larger offset is clearly the better play. Decisions...the flexibility is always tempting. If rents continue to increase and if we picked a good area for capital growth then it would be a nice balance. Now where's my crystal ball...

 

Another way to look at this is you could use $1 to pay off your loan, or put that $1 into your offset account. Either way you pay the same amount of interest, but putting the money into an offset account doesn't help your borrowing power.

However the $1 in the offset account means that you have an extra $1 available for a deposit, so you don't need to borrow it. Effectively the equation is still a neutral one.

Furthermore, if there is a set of circumstances where paying off the loan would be a better outcome than cash in the offset account, you can use the cash to pay off the loan at any time you like.

The benefit of the offset account is that it gives you the options to make the decisions. That's not something you always have if you pay down debt. The down side of the offset account for some people is that they may be more tempted to spend the money frivolously rather than using it strategically.

 

This - if your disciliplined and it doesn't cost much (for an IO with offset) setup.

You can 'increase' your borrowing power eventually anyway if you have large offset balances - the flexibility gives you options to pay down debt if you need to. You can choose to pay down the loan, adjust the limit down (i.e. actually pay the loan down) and then increase your borrowing power when you need to. This may mean you don't really need that crystal ball with the offset approach, once you have the information you need when your looking to buy, the offset approach gives you flexibility to make decisions.

 

Cheers @Peter_Tersteeg & @Redom
I'm not too worried about temptation as we've been on top of our budgets. Now that APRA have made it difficult to refinance, I agree that having the options to pay down loans at my choosing is something I would prioritise, should more changes by the banks come in to play.

The offset would only be for the rainy days or large deposits for PPOR. If for some reason, a few years down the track I don't have enough deposit for another investment and I want to make the purchase at that moment, I could pay down some principal to make up that shortfall. And instead of paying down principal for that particular loan/lender, I could choose to pay off a different IP principal if there's a good reason to (better borrowing power if I pay down more debt with a different lender?)

 

Hi All, it's been a while.
So is it more beneficial to reduce PPOR debt, or IP debt to increase borrowing power?

 

Always PPOR debt first because that's non-deductible. Noone is helping you pay that down.

 

I/O fixed for 2 years at 4.19% - worth it ? or is there anything better available?