New home loan strategy

Hey guys,

Just bought a house and planning on using it as PPOR. In the process of finding the right loan for the place. Plan will be to pay it off (or get close to paying it off) in 5 years. Any general advice on the right product type or what not to do when getting a loan would be appreciated.

 

What's happening after the 5 years.
It's probably not at front of mind as most don't plan more than 5 years ahead.
But it's probably a lot more important that the next 5 years.

Will you hold onto the property after 5 years?
Will it become an investment property?
Are you planning to purchase anymore properties?

Previously IO w/ offset was great - but now with higher rates for IO a lot are opting for P&I.
Still would be looking for something with offset, paying the minimum off the balance and keeping rest in offset.
Without further info it's bit hard to say.

 

Yes, to clarify, will be drawing down the equity in 5 years to purchase more IPs. I will hold onto all the properties until I need to debt recycle to achieve the right portfolio LVR.

This property will most likely turn into IP

 

If you're going to convert the property to an IP in the future - it might be best to not pay it down over the 5 years.

You could potentially keep the PPOR geared up, save the difference in offset, draw equity in the future for future investments and retain the cash for future PPOR use. If there's a bit of a lag time between PPOR's a strategy of leveraging against a TD for an interrim period might work out - but that will be down to what your broker + accountant come up with numbers wise.

There's some good potential strategising which can be done here to optimise the results - I'd suggest getting specific advice so you don't kick yourself in 5-10 years time.

 

You would want to keep things as flexible as possible while minimising interest.

Start off with 80% LVR even if you have a large deposit. You will or should consider the splits upfront - multiple splits perhaps. Some IO with offsets, with PI - but this will depend on your cash levels, income levels and plans to move or stay put.

 

An offset account is critical if it will become an IP in the future. Put all your savings into the offset account rather than pay off the loan directly. This is likely to give you a better tax outcome in the future. Regardless of what actually occurs, it gives you the flexibility to adapt to future plans as they evolve.

Interest only vs principal & interest repayments could go either way. The ability to pay off the loan quickly and the future serviceability implications need to be considered.

 

Avoid LMI if possible, retain as much cash as possible in your offset, maximise savings into the offset rather than paying down the debt and if you must have P&I then split your loan up into smaller chunks so that you can debt recycle these.

 

Hey Rolf. From Melbourne, Florida but bought in Melbourne, Oz

 

As stated above you want to be as flexible as possible so dont pay down the debt until you have to and store cash in the offset instead. Keep your options open with the same net effect.