Hi, Looking at using a split to invest money in stages. The differential of P&I vs IO loans is a about 1%, so have opted for P&I to save on interest. The problem is however, if i make a split for 100K for example, and would like to invest say 20k now and the 80k later on, the monthly repayments will be calculated on the total 100k. Which means i will be paying quite a lot of principal instead of interest, hindering the tax efficiency. The only two alternatives i can see are - taking the hit and using IO loans for ease of use - multiple splits, but this becomes cumbersome. Anyone have any thoughts?
keep the money in the loan account and draw down $20k to invest, then draw down another $20k to invest.
Would the interest charged be minimal, and mostly principal repayments if i do this? Wouldn't the repayments be calculated on the total loan of $100k, and the interest on only the drawn down amount of $20k, which leaves mostly principal paid off each month?
no because with some lenders you can reduce PI repayments when you are ahead. With ANZ for example you could reduce the minimum repayment each month which would delay the repayment of the loan. With AMP or westpac you cannot. You might be better off with a LOC until the funds are used, or an IO loan, and then convert it to PI once all used up, this will delay the repayment. Also you could refinance back to 30 years every 3 years or so too.
Thanks as always, didn't even know some of those options existed. Pays to have a knowledgeable broker like yourself!! Some really good options to think about. Will need to factor in the simplicity of approach too, given the benefits may not be huge. Much appreciated.
There are a lot of little strategies with loans. Some very simple and not technical but perhaps not so obvious.
