I'm struggling to work out which way to go. Please help! Stick with IO or switch to PI. Is there a clear winner? $400,000 loan 5.1% IO or 4.6% PI 3 years into a 30 year loan 10 year IO period 37% tax bracket No non-deductible debt Cash flow not a problem (does this answer my question...if cash flow is no problem just go P&I? but you lose the flexibility I guess) Plan for property unclear though will definitely hold for a few more years at which point...?sell ?develop and hold ?develop and sell The obvious to me is that I'm paying an extra $2000 in interest each year due to the 0.5% premium. Switching to PI would cost me around an extra $5000 in cashflow per year? If that $5000 would have just sat in an offset with no cash flow issues and no non-deductible debt, is it a no brainer to switch to PI? Any other obvious variables to account for? Thanks!!
It's $1260 pa cheaper, as interest is deductible at your marginal tax rate. Cashflow is fine now, but in a couple of years time you might have bought another investment and cash flows tighter?
I think you will incur more than $2k pa due to NPV of payments of PI vs IO. Someone here who has finance background can put in excel and voila. Cheers
I've just looked into this. Three loans have switched now from IO to P&I and now we are retired, we cannot renegotiate. I locked those three loans at 3.88% P&I as we are paying P&I on total loan limit, regardless of outstanding balance. I looked at locking a couple more loans at 3.88% and moving from IO to P&I, but I lose flexibility. The rate difference doesn't matter much because one loan is paid down to $1 with redraw available and another is two thirds offset. So rate (whilst loans aren't fully drawn) isn't the most important thing for us, but flexibility and ability to redraw is. We didn't change other loans from IO to P&I because our cashflow would have dropped substantially and I couldn't go back to IO. Why not look at locking your IO rate but instead of moving to P&I, put the P&I level of repayments into an offset against the IO loan. That means you are reducing the monthly repayment required without giving up IO and flexibility. My bank doesn't allow an offset against a locked rate loan, so check this out. We are lucky that we have several loans, and can lock some, not others, offset some etc.
Just fixed 2m of loans to the 2 year 3.88% pi - decided it was worth the reduced flexibility to save 20k a year (was being reemed at 4.89% for io)
With ever increasing differential between IO and PI, there is not much cash flow left anyway. 4.6% PI is high why not go for cheaper PI options if you are looking for 80 lvr? I am currently paying [email protected]% with offset.
