Hey guys, Just bought my first investment property but don't know how to structure my finances. Not sure whether I should go for a P&I or an IO loan. Just some background: - Income of 48k a year - I save around 4k a month, which i plan to direct all of it to the purchase my second investment property. However, I don't know whether to do this in the form of savings in an offset account if i go for an IO loan or paying down the loan of my investment property via a P&I loan. - No other debts (i.e. no owner-occupier house, no credit cards etc.) - My mortgage broker has given me an unbeatable deal where P&I is 2.94% fixed and IO is 2.99% fixed (offset costs 120$ a year) - I plan to build a property portfolio, with my PPOR somewhere in the mix in around 5 years What are your thoughts?
Typically, having your cash as your cash in your offset account is better than building equity in principal, since you dont control the P repaid - the lender does. With such a small spread on the IP to PI on your quoted rates Id go IO every day ta rolf
i would make sure the offsets can offset while fixed. I would suggest just saving in the offset account until you need to use it and at that point decide whether to use it by a) taking it directly from the offset, or b) paying down the loan and reborrowing.
What if the P&I loan has extra repayments and a redraw or offset account as well? Another question I had: if I were to fix the interest rates, how long should I do it for. I heard that over 3 years fixed rate isn't ideal as it is a long time and anything can happen, but also 2.94-2.99% is very low and my dad (who is a property investor too) says that he's never see interest rates that low and recommend me fixing it as long as possible?
Do you think rates will drop further or increase or remain flat? I can't see them increasing in the next 5 or so years, but think more likely to decrease. Also regardless of your outlook fixing locks you into a bank. I just spoke to someone who has a $6k break fee on a $300,000 so doesn't want to refinance for another year to avoid it.
Seriously? It'll keep going down? I'm quite new to this so I take your word over mine. I thought interest rates were already at an all time low
I hear a lot of talk about how interest rates are still going down. Maybe I should go for variable rate then?
The gift that keeps on giving............ Often, that cost will rise in the current markets, and the combination of riding the tail winds of a declining variable rate market, a likely immediate tax deduction for the break cost if an IP ( TW ??) and a possible refinance rebate, often make the STAY a not so good decision purely on the refi numbers ta rolf
That was my advice - the $6k deductible in one hit, you could borrow to pay for it, and the refinance would save about $3k per year.
isnt it odd, that even though one provides " the best" advice from many years of specific type client experience, which makes logical sense, sometimes the emotions get in the way of common sense. ta rolf
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