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loan for PPOR

Discussion in 'Property Finance' started by Valentino, 24th Aug, 2016.

  1. Valentino

    Valentino Active Member

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    I thought a PPOR had to have a PI loan, not an IO loan.

    Why would one do IO for PPOR ? esp when interest rates are low.
    - it's less to have to pay each month. Any other reason/s?

    Wouldn't it be better to knock off interest while rates are low?

    Ta
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    There are about 7 reasons one may want to do io for owner occp.
    1. Cashflow. Lower repayments.

    2. If you intend to move out you would want to keep the balance high

    3. Risk. Parking excess funds in offset can help if your cashflow gets tight.

    4. Spousal loan strategies. Building up cashbcould allow spouses to lend to each other.

    5. Tax strategies. If you move out cashbcould be moved around to different loans with different owners

    6. Estate planning
    Different outcomes on death

    Etc
     
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  3. Propertunity

    Propertunity Exclusive Real Estate Buyers Agent Business Member

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    Use spare cash to leverage into more IPs.
     
  4. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    If you decide to rent this property out in the future - IO with an offset can be a good method for preserving the principal which in turn provides higher interest deductions in the future when the property becomes an IP.

    I was going to copy/paste from my blog but here's the link - hopefully it helps Pass Go Home Loans - Interest Only with offset account structure

    Cheers

    Jamie
     
  5. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    Others have covered it well.

    I'll just emphasise a point many overlook:

    I/O + offset has all the benefits of P&I (plus a bunch of additional up sides) and none of the down sides*

    *Slight generalisation. P&I acts like "forced savings" which is great for people who are lack financial discipline, and I/O repayments can reduce borrowing capacity with some lenders at the present point in time.
     
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  6. Valentino

    Valentino Active Member

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    Thanks,, that really helps to understand. We've never had a P&i loan before, only IO.IO + offset helps with serviceability.
     
  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Actually a PI loan would help with servicing more these days - with most lenders.
     
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  8. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    I reckon as brokers we need to be careful with IO loans on PPORS under the new regime. I only do it now with people who show a lot of discipline, which is most of my clients :)

    There was a precedent I read about where the clients went after the broker because the spent the money in the offset and only had IO.

    @Terry_w may no of it?
     
  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes this could happen - not aware of that case Colin, but it could be not appropriate under the NCCP. Brokers should give written advice about the dangers of using IO and suggest they seek financial advice.
     
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  10. Glorion

    Glorion Well-Known Member

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    That's of the same vein as one suing McDonald's for making one obese. Utter tripe. Especially in this day and age when information is literally a buttons push away.
     
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  11. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    Yep its utterly ridiculous. Everyone can do grade 5 maths so no excuses really. Personal responsibility is going the way of the dodo thanks to some lawyers looking for billable hours, no offence Terry :)
     
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