Is IO on the way back?

Me too. I invest long term and want to be able to plan my finance the same way. Having significant changes like this mean i am adjusting my plans and not in a positive way.

 

Same re cash flow........what's made it worse for me is the money in offsets no longer assists my cash flow.

Yes it's paying down my loan quicker as the principal portion of the monthly payment is larger, but the immediate cash flow hit was a shock. The IO to PI I've been planning for, but the offsets caught me out.

 

I know it would mean compromising a buffer but Couldn’t you have used the cash in the offsets to pay down the balance of the loan and therefore reduce the P&I and support cashflow?

 

Good question. If you have a $500k IO loan with $100k in offset - what is your new P&I loan balance set at?

I'm guessing $500k with your $100k sitting in the separate account

 

It doesn't reduce the PI payments unless the loan is paid in full (possibly different for different lenders though?)

 

I believe that is the case but no separate loan for the Offset. Only thing that changes is that your repayments will grow as you are paying the principal part of the mortgage now

 

Offset account helps in reducing interest and time required to pay off the loan but not cashflow as you mentioned. You will have to call the bank and check on this one but it seems like it's possible to pay a lump sum on the mortgage and then ask them to recalculate your monthly payments for the same duration of the loan hence your repayments will be lesser.
Probably best to check with a broker for better solutions though...

 

What's the context?

IO for investment - Rolf's post summarises the landscape well.

IO for owner occupied loans - thats completely different and still taboo (and rightfully so).

Without digressing too much - I have seen way too many people not disciplined with their offset money and were better off paying P&I. This applies to investment loans too.

 

@Coconutwheels ,
I am with NAB and thought i'd call them today an ask a few questions in regards to paying down PPOR mortgage using a lump sum from my offset account.
Currently I am on an IO variable rate with 100% offset and the plan was to turn the current PPOR into an IP and take money out of the offset to invest more after IO period is finished...

NAB said that i can make a lump sum payment against the mortgage from the offset and that will not change the monthly re-payments as expected.

Other option was to convert the loan to P&I and then make the lump sum payment and get a Loan Review done which will look into recalculating the monthly payments which obviously would be smaller and will improve cashflow. Loan review would cost nothing and also i get to keep the offset facility on the loan.

Hope the above clears things up for some.

 

Thanks this is what I was alluding to above but you have made it much clearer in terms of the process to follow.

 

Thanks for the info @paulF, in the right scenario that is a possible solution, you would possibly lose some control of the money (some banks you need approval to redraw extra repayments), and potientialy repurpose/creat a mixed loan when you do redraw it.

I'm finally in the fortunate position to have Debt recycled all my non deductible debt, I haven't invested all the cash I've recycled through loan yet, I did this in one big chunk into the loan then all into the offset account. If I'd been onto this from the start I potientialy could have withdrawn smaller chunks and asked for loan reviews as I went.

Most of the other cash I'm squirrelling away is for a ppor Reno so if I pay that off any loans now it's like debt recycling in reverse.

Like I said I'm in a good position anyway so I won't winge too hard , but just something that caught me out, not having dealt with PI for 20yrs.

 

Yes this is correct but just note that the money used to pay down the loan will no longer be accessible. I imagine that’s fairly common sense but just wanted to make sure your aware.

 

Also bear in mind, if you pay down your debt to recalculate your payments rather than leave the cash in the offset then down the line decide to make the property an IP you can't claim interest deductions on the re-draw. The max delectable loan amount is the lowest amount you paid it down to.

Leaving it in the offset and your actual "on paper" loan figure as it is gives you more tax flexibility down the track.

 

I understand that @albanga but what is stopping me from taking an equity loan on the house and using that to invest in another IP/shares (I get all the post APRA arguments too ...)?

@Propagate , yup i get that but on the upper hand if i decide to rent out the place later on, it will have much more equity and will be cahsflow positive and positively geared. I don't think that is a bad thing and can actually be more beneficial than negative gearing in some circumstances i think where I to be on the lower tax brackets.

Not saying i'm actually going for this but i think there is merit in lowering PPOR repayments in this manner... Also with lower PPOR repayments , one can reinvest the savings into other assets.

 

Weird question.

My cousin has two IO loans with Westpac, written 2015 and mid 2017, both with 15-year IO terms. Is Westpac still doing this?

To be honest, I was gobsmacked that WBC would even agree to those IO terms in the first place!