PPOR paid off, all IP loans on IO, 0.6% diff between PI/IO, should I switch?

I understand that IO provides flexibility on cashflow and allows more money to put towards PPOR. What if PPOR has been paid off, and cashflow is not an issue (in the forseable future)? Any advantages left for IO IP loans?

I see people doing calculations and comparisons between PI and IO. Currently I am facing about 0.6% difference on these two for my IP loans. Is it worth it to swtich them to PI? Any side effects in other aspects such as borrowing capacity, tax deduction, etc?

Also if I switch to PI, and in the future if things get better (IO and PI are at the same rate again), can I just refinance and get all my previously paid principle out?

Really confused. Thanks very much for reading!

 

If servicing is fine with all payments buffered to 7.25% P&I, you should have no trouble refinancing back to IO (as long as LVR is okay and the lenders don't get completely stupid about it)

It still depends on overall goals - will you be buying more property? Are deposits an issue? Is it worth using IO and putting the extra cash into shares/LIC's/ETF's? How high is your LVR? Are your IP's CF+?

So much to consider...

 

I personally would rather save the interest instead of keeping a loan at IO. Perhaps you could do a mixture and have the offset on the IO loan.

 

Thanks Jess for your kind reply.

To provide further info:

will you be buying more property? YES
Are deposits an issue? NO
other investment such as shares/LIC/ETF? NO
LVR? Around 60% without PPOR, around 50% with PPOR
IP's CF+? About Neutral

With my answers above, should I switch to PI please? Many thanks.

 

Thanks Terry, any straight approach to compare and analyse cons & pros on:

1. cashflow (PI paying more down),
2. saved interest on PI
3. reduced effect on tax deduction?

Many thanks!

 

Yes, I created a recent thread on this - in the past week or so

 

You'll need to see someone to get specific advice. We can speak in generalisations only, there are too many variables to take into account from reading 10 lines of text. There are plenty of good brokers on here and no doubt in your local area as well.

Your LVR is pretty strong and given servicing and deposits aren't an issue it sounds like you can't go wrong whichever strategy you choose. Only you and your advisers know the correct answer. Speak to your accountant and broker about your goals and how to get there.

A) Save cash in your offset with an IO loan and pay P&I on all other loans => debt reduction, while still saving a deposit for your next house/endeavour.

B) Pay P&I on all loans, focus on one specifically, pay it off then draw it down again (check the tax implications of this one). Consider refinancing or splitting your loans to get bite sized loans you can pay down and draw upon easier than a large lump sum.

C) Pay IO on all loans and have various offset accounts which gives you the safety net of cash you control while having the benefit of reducing interest expense.

Maybe you need to buy a luxury yacht ;-)

 

I can't give specific advice on a forum, but without knowing all the details it looks like a pretty good candidate for paying PI.

One thing to consider is if paying PI will hinder servicing of the next purchase - the most generous lenders are still best with existing lending on IO payments. I'd get this checked before proceeding.

 

To me it'd depend on buying more properties or not.

If yes , keep as IO to improve cashflow and save for deposit and reno costs.

If no, then go p & I and reduce debt. This will bring you closer to retirement but only worthwhile if appropriate asset base is there. It'll have the benefit of improving your serviceability (since less debt to your name) if you buy more.

Most of mine are p&I now. Rents have crept up to afford it, onto deleverage stage.

 

To me buying more properties doesn't come into it much because you can always borrow against the increased equity.

Cash flow is a more important thing to consider. paying PI will eat up much more cash flow so can you 'afford' to pay PI (you probably should!). If you are about to retire the extra payments may mean your retirement is delayed as the cash flow is no longer enough yet.

 

But you don't have increased equity unless property going up, either from growth or reno, or from debt side of the equation reducing.

 

That's right the PI loan is reducing so even if there is no growth the equity is increasing which can be borrowed against.

 

Assuming plenty of cash and 100% PPOR equity, and no investment intentions apart from more IPs, I'd be inclined to go P&I on the IPs to save some interest. There is more than enough cashflow to cover the principal repayments, and heaps of equity in the PPOR to fund IP acquisition costs.

 

Thanks very much Tom. I am currently leaning towards option A, seems logical and balanced between risk (CF) and cost(Interest).

 

If you have more than one P & I loans, say loan A and B, is it possible for principle repayment portion of loan B to go into A instead? This is to keep B "IO" even though the repayment amount is PI ?

 

@doubletoplei when you mentioned that your ppor is already paid off, is it the offset is filled up or actually having zero loan?

My ppor offset is filled up now but with the new lending these days, I am wondering if I should just close out the loan. This may help with my future borrowings when I need to dip back on the market.

 

Tax Tip 46: Want to Pay IO on a PI loan?

 

like this?
Tax Tip 46: Want to Pay IO on a PI loan? https://propertychat.com.au/community/threads/tax-tip-46-want-to-pay-io-on-a-pi-loan.4438/

 

Not exactly. What I mean is - is there a bank offering a lending product that do this:
Eg:
Loan A - P&I repayment as normal
Loan B - Split repayment - Calculated P amount repay into A instead of B, I amount to B.

 

You mean the principal of B is paid from A?