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IO on PPOR

Discussion in 'General Property Chat' started by VMR, 3rd Apr, 2016.

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  1. VMR

    VMR Member

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    Just wanted to get an idea of the general consensus.
    Would you go IO for a period of time on your PPOR?
    Hubby and I finished building our dream home which we are planning to stay in indefinitely. We have taken out a fair chunk of the equity (as IO loan) on this home for some joint property development with family (which should be complete and paid out within the next 12-18 months).
    We would love to purchase an invest property of our own to buy and hold for the medium to long term but, as we have almost maxed out our equity and don't want to push serviceability, were considering going IO for a short time.
    We have seen a local property that we can buy for about 75K under market value and renovate quite cheaply and re rent to almost cover the IO loan.
    Hubby and I are pretty conservative with our money and obviously don't want to get into anything risky that could jeopardise our PPOR.
    What are others experiences with doing this?
     
  2. D.T.

    D.T. Adelaide Property Manager Business Member

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    I went IO on my previous PPOR. It was at a time when I wanted to be more aggressive on investing, so needed to free up the cashflow to allow me to do that. We're currently shopping for a new PPOR, will likely be P&I this time as we're further along in our investing now and need to reduce debt a bit.

    Short answer is, depends on your circumstances.
     
  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Ideally you would keep it IO for ever and save into an offset - just in case you move out and rent it. if you think this unlikely then it may be best to pay it off asap and borrow against it to invest.
     
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  4. dabbler

    dabbler Well-Known Member

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    If your staying forever, no, pay it off, if it is intended to be an IP, then yes.
     
  5. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    If you are thinking to make it IO so you can save for an IP, you'd be better off paying down the PPOR, splitting the loan and redrawing the funds for your deposit. This will reduce your non deductible debt and increase deductible.
     
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  6. Skilled_Migrant

    Skilled_Migrant Well-Known Member

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    Another scenario of IO on PPoR
    • Keep it IO for the entire duration of PPoR possession.
    • Pay the extra money (PI-IO) fortnightly/monthly towards you super via salary sacrifice.
    • Earn tax discount (marginal tax rate-15%) + return on super (3% term deposit) for the duration of possession. Assuming the mortgage is at average 7% for the duration of possession of PPOR and the marginal tax rate is 30 %, you are (30-15-7+3 =) 11% (conservatively) better of just by paying your principle amount into your super.
    • Pay of the PPoR when eligible to withdraw the super tax free.
    • You have converted the non-deductable to deductable without any risk through super.
    • IP(s) can then also be bought from SMSF if needed.
     
  7. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Personally - if it were me - and I had every intention of staying their forever (or at least never renting it out) then I'd go P&I.

    Having said that - plans change (they always do) and IO does provide much more flexibility in this regard. However - it's hugely important that you make an effort to funnel extra funds into the offset each month and avoid just paying off the minimum interest.

    Cheers

    Jamie
     
  8. Mitesh Dedhia

    Mitesh Dedhia Well-Known Member Business Member

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    I personally like & have interest only loan with offset account for my PPOR. It gives me flexibility & cashflow.
     
  9. Big Will

    Big Will Well-Known Member

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    For me flexibility is a key factor to consider with things.

    IO provides you the flexibility to move out or pay for that car (either repairs or new/2nd hand) or perhaps holidays/family emergency without applying for a loan and if you move out you reduce your taxable income.

    However as @Jamie Moore mention if you only pay the minimum then it will cost you more.