Interest only payments or P and I?

I'm buying my first investment property.dont own the home I love in.broker has suggested having an offset account and paying interest only.do others do this?is this beneficial?how do you ever actually pay off the debt if it's interest only?

 

Yes, yes and doesn't matter if you paid it off or not as eventually you will have a house worth 10x what you loan is and the cash in the offset may be enough to pay out the loan at any time.

I have written a post about this which I will tidy up and post tomorrow in the tax section.

 

Like Terry says, you don't need to ever pay off the debt.
Also, don't worry about not owning the home you love in, I'd assume most people renting don't either.

 

Be disciplined and make regular, ongoing contributions to your offset account.

Cheers

Jamie

 

Be careful where you buy. Ultimately you want some capital growth since it is equity you are trying to build.

Be careful of some regionals & mining towns. Some have seen massive drops in value and will take a long time to recover.

Focus on good locations, where there is demand for rentals ( low vacancy rates ).

 

Speak for yourself, I'm getting everything buried with me

 

For investment properties, interest only loans are the only thing I have done to date.
As stated, the interest is deductible.

 

Terry, when the IO loan expires it automatically reverts to P&!.... how long can u keep telling the banks Im only on IO for? Can they stop IO and force you to go on P&I?

Also if the loan term is 30 years, and you go on IO 20 years.... then the last 10 years of the loan the bank says you gotta pay off the loan - thats 10 years to pay off the principal!!???

 

Michael - it depends on the bank. some you have to reapply with new payslips. Others will just extend the IO period. But this may be changing soon with the ASIC/APRA pressures.

10 years to pay off principal may not be much to worry about. Imagine you had purchased a home in Sydney 20 years ago, borrowing 100%, and now had to pay the loan principal off over 10 years. The rents alone would probably do it in a few years.

e.e. $300,000 property with $300,000 loan. Now worth $1,500,000. Rents for $1000 per week
Repayments on a $300,000 loan, PI, over 10 years would be $3,109 per month

 

Extend IO indefinitely if possible. If you are somehow forced onto P&I then you should have saved up enough cash in your offset to pay off most/all of the principal. IO isn't a licence to forget principal payments, it's a facility that gives you more flexibility with where those payments sit and work for you.

 

What chan

What changes may be made with aprra?you think they will not allow so many IO payments?i still don't really understand the benefit of an offset acct...sorry,it's a bit over my head

 

Why should u pay interest only?im not really understanding this

 

I'm certainly not going to be buying in a mining town.using a reputable buyers agent to help me find a good location hopefully

 

Why do u do interest only?

 

All my investment properties have been P&I. I like to see the debt go down. Too many people are inappropriately on interest only and are just using the saved payments to spend or speculate further, they will have big problems when interest rates rise and they haven't taken advantage of low rates to pay off some principal.

 

You need to do some research, which might involve reading some books.
It might seem a bit foreign at first like a "never never" loan where you will never pay it off by paying interest only. But it's deductible, so the closer you get in rent coming to mortgage payment going out the better.

 

https://propertychat.com.au/communi...-loans-to-acquire-investment-properties.3144/

 

I always recommend my clients structure their loan IO with an offset for investment or even owner occupied, obviously you want to claim the full tax benefits from negative gearing (if any) from your investment... But when you want to use that equity for your next purchase the cash is sitting right there and you don't need to take out another equity loan to purchase it.... One less loan to worry about