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Interest Only or Principle & Interest

Discussion in 'Property Finance' started by Martinez22, 12th Aug, 2015.

  1. Martinez22

    Martinez22 Well-Known Member

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    If you are residing in a property (long term) with the intention to turn it into an investment later, is it better to pay down the loan in meantime or keep it as interest only?
     
  2. Raydar

    Raydar Well-Known Member

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    I/O with an offset. Keep your deductible debt maxed out for the biggest tax benefit later. Your offset will help reduce your interest payments in the meantime whilst it's your PPR.
     
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  3. Notlad Samoht

    Notlad Samoht Active Member

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    Yeh, personally I would knock it down if you are staying in it long term. I am assuming that means 5+ years. If you have a redraw facility, you will be able to pull that extra money out anyway whilst you appear to have lowered your debt.
     
  4. Raydar

    Raydar Well-Known Member

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  5. Darlinghurst Boy

    Darlinghurst Boy Well-Known Member

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    Interest only with an offset has a higher interest rate with Commbank currently 5.45% they wanted to charge me compared to their one without offset account 4.39%
     
  6. Notlad Samoht

    Notlad Samoht Active Member

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  7. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Sadly this makes sense on the face of it but will cost you heaps in deductions down the track. The money you take from redraw will not be deductible if you want to buy another PPOR for eg. IO with offset is the best (only) way if you want to maximise your position and not have a load of non-deductible debt in the future.
     
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  8. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Sometimes saving pennies can cost you pounds. In your specific context it was probably okay, but that is not the case all or even most of the time particularly for investors.
     
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  9. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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  10. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes this would be good from a conventional point of view, but a disaster from a tax point of view as none of the interest on the redrawn loan would be deductible. AND you would have created a mixed purpose loan
    Tax Tip 3: Mixing Loans - Don’t do it https://propertychat.com.au/community/threads/tax-tip-3-mixing-loans-dont-do-it.1517/

    Also consider buying the property in one name and sell all or half (depending on state) to the other spouse (needs to be before you move out) - see future tax tip I will write about this.
     
  11. Martinez22

    Martinez22 Well-Known Member

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    Great explanation ! Thank you :) I think something clicks in your head as soon as you move into house that you need to pay it down. Bit hard to separate the idea of a home with an investment prospect. Will stick with I&O...do you know if Bankwest allow multiple offset loans linked to one loan?