Interest Only Investment Property

Discussion in 'Financial Planning' started by mytwocents, 6th Apr, 2022.

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  1. mytwocents

    mytwocents Well-Known Member

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    Hi Investors,

    I have a PPOR where my parents are living in and not paying anywhere near the rent it demands. So I am running at a loss. Should I be changing this into Interest Only Loan??
     
    mytwocents, 6th Apr, 2022
    #1
  2. Terry_w

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

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    That is a big question

    Do you have other debt and does that debt non-deductible interest?
    Are you claiming interest on this property?
    What is the rate difference between PI and IO
    How old is the loan?
    is cash flow tight?
    what would you do with the improved cash flow?
    Is your servicing tight?
    Do you want to borrow more now or in the future?
    etc
     
    Terry_w, 6th Apr, 2022
    #2
  3. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    not enough info

    whats the current PI rate vs the IO rate

    Where are you living at the moment ?

    ta
    rolf
     
    Rolf Latham, 6th Apr, 2022
    #3
  4. mytwocents

    mytwocents Well-Known Member

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    mytwocents, 6th Apr, 2022
    #4
  5. mytwocents

    mytwocents Well-Known Member

    Joined:
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    Location:
    Melbourne

    Do you have other debt and does that debt non-deductible interest?
    No Other debt, 180K in offset

    Are you claiming interest on this property?
    Claiming Interest

    What is the rate difference between PI and IO
    2.65 PI, I could get 2.2 IO

    How old is the loan?
    5 years

    is cash flow tight?
    cash flow not tight at all. I want to buy another investment as I originally bought this as my PPOR initially

    what would you do with the improved cash flow?
    I want to invest in another property but not sure if i should use the 250K of equity in this loan or go into my offset savings

    Is your servicing tight?
    servicing not tight. i can afford it, just that I'm topping up $600 a month

    Do you want to borrow more now or in the future?
    yes
    etc
     
    mytwocents, 6th Apr, 2022
    #5
  6. Terry_w

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

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    if IO is lower it might make sense to change.

    Extending loan term to 30 years would lower PI repayments

    It would be paying itself off quickly in that case

    get some tax advice as you probably shouldn't be claiming interest in full if it is a related party lease under market value.

    Its generally better to borrow rather than use cash for investing as you can keep the cash in the offset and use it later more tax effectively.

    2 other points
    a) you can always split the loan into portions and have some IO and some PI so it is not necessarily one or the other
    b) you can generally easily convert an IO loan to a PI loan without much hassle but cannot convert PI to IO without a reapplication
     
    Terry_w, 6th Apr, 2022
    #6
  7. Lindsay_W

    Lindsay_W Well-Known Member

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    You asked in another thread about growing your investment portfolio, switching this loan to IO may actually reduce your future borrowing capacity so I suggest you get some advice around your options and how it affects your overall investment goals/objectives.
     
    Last edited: 6th Apr, 2022
    Lindsay_W, 6th Apr, 2022
    #7