P&I On Investment Property

Hi,
I have an investment property worth about $650k, current loan is about $340k so it is slightly positively geared.
I have a business and fairly large income so I am paying a lot of tax. NAB wont give me IO loan anymore as been IO for about 9 years.
What are my options here?
Ideally I would like to refinance with another bank and get a loan of about $400k and make it IO but not sure if I can continue IO ongoing.
Thanks in advance
Mark​

 

try another bank. And/or extend the loan term back to 30 years.

 

All things being equal, you should be able to get this set elsewhere. You could also refi with NAB out to a new term with new IO if you're willing to go through a new application process.

They just won't do it without a full assessment.

 

Ok thank you, will try NAB as I have all my loans with them so it's just easier.

Lets say I increase loan from 340k to 400k, can I use the additional funds (60k) to do anything like purchase a car or must it be used on renovations of IP?

 

You could potentially use it for anything, but think of the tax implications. best to split the loan

 

this doesnt compute.

 

If moving banks saved you $4000 interest per year, would you move from NAB?
That's a lot of money to pay for 'convenience'

 

Your options all involve some form of refinance:
- Internal refi with NAB and reset the clock on your loan. Given your simplicity preference, this may be your starting point.
- External refinance with another lender. This goes against your simplicity, but may involve some cost advantages.
- Let it go to P&I over 20 years. Cash flow hit, but with rates this low, a big chunk of the repayment is principle reductions at that amortisation period.

 

Thanks for everyones replies. I am more than happy to move away from NAB if it wall save costs. My thought process was if I can refinance and keep it interest only then it will be less positively geared and I will have to pay less tax.
I'm not sure if aiming to pay more interest to pay less tax is a wise move or not or maybe I am better off leaving it P&I and paying off the loan; the only problem this creates is then it will be even more income then I will have to pay more tax.
Not sure if the aim should be paying less tax vs paying off the loan and paying less interest, more tax.
I'm not very financially savvy.

 

On IO the interest will be the same as PI, or slightly higher initially. But as time goes by the PI loan would have reduced to balance so less interest is paid as the balance decreases.

but this is because you are diverting more money into the loan. If you were paying IO where would the excess cashflow go?

 

I am also wondering about this in a similar light, I have always thought IO on your slightly positive cash flowed rentals is the better option as you pay less Tax, and put the cashflow into your Owner Occupied loan, the house you live in. The question is whether paying the slightly higher interest rate for an IO loan usually .2/.3% is worth the the tax advantages of an IO Investment loan if you are in a high tax bracket? (32.5% to the dollar). I would like to run the numbers but can't figure out how you would work it out? I just read in a book somewhere that that's what you should do. But would like to see some examples and also work out by how much one is better than the other.

 

So would I!

 

Assuming your serviceability is no problems as you mention your income is fairly high, you canceasily refinance to IO and cash out up to $400k.

potentially Refinance it for 5 years and when that's up refinance it again.

But since you're already positive geared, you probably won't be reducing your taxable income.

 

It would reduce taxable income because with PI you would be paying less interest each month as the balance reduces.

 

Lose a dollar to make 45c

 

I don't know how this comment relates to my post?

 

The marginal tax savings may assist the borrower to repay non-deductible debt in preference to paying down the deductible debt of course. The whole of the borrowers financial position is important rather than the investment specific loan. Maintaining a IO debt balance which allows extra non-deductible P&I debt is something the credit advice would consider rather than focus on the investment choice alone.

Its not a case of choosing to repay IO alone.