Small Equity Loan: Leave P&I Or Request Interest Only?

Discussion in 'Loans & Mortgage Brokers' started by Pleasure Paulie, 20th May, 2018.

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  1. Pleasure Paulie

    Pleasure Paulie Well-Known Member

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    QLD
    I have a loan of around 24k which is an equity loan from my PPOR to avoid crossing my loans for the main portion of the investment property loan (which is I/O).

    When I refinanced earlier this year to a much better rate, my broker moved that 24k to P&I for the lower rate.

    If I move the 24k to an investment product and interest only, the rate will move to 4.73% vs 3.79% with what I'm currently paying currently as P&I. Repayments are around $95 (I/O Only) vs $$112 (P&I) that I'm currently paying. So repayments are $18 a month more to pay down $36 of principle a month (interest is about $76 a month at 3.79%).

    I'm not normally in favour of paying down investment debt before PPOR debt, but the small amount I'm paying off each month for the lower rate has not worried me a huge amount.

    Would the professionals here recommend I request with my bank moving that 24k to an I/O investment product to avoid paying down that debt any further?
     
  2. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Personally I’d just leave it as is

    Cheers

    Jamie
     
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  3. Pleasure Paulie

    Pleasure Paulie Well-Known Member

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    QLD
    Well my deduction is effectively $76 a month vs $95 (if I moved to I/O). I know nobody should be spending $1 to get money back fro tax, but is there more long term consequences of not moving this to I/O and not continually reducing my principle (even at a slow rate of $36 a month).
     
  4. Anthony Brew

    Anthony Brew Well-Known Member

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    So if the repayments are $18 more per month to pay down $36 of principle, you are essentially getting an immediate profit of 100% return on your money?
    I would think that is pretty hard to beat, even after accounting for the fact that paying off an investment loan is not a great use of spare funds.
     
  5. Tom Simpson

    Tom Simpson Well-Known Member

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    Subiaco
    Pretty good.

    I think you're sweating too much here, it's $18 after all. If you need the $18 then change, if you don't it's not a big deal. Ultimately whether you pay down the $24k loan isn't going to make or break your investment strategy.

    If in doubt and you want full analysis of it speak to your accountant.
     
    Terry_w likes this.