I have only recently stumbled across the PC website, so first of all, hi to everyone out there. About me/my situation. I am single, 37, 1 dependent, PPOR value approx $720k, loan outstanding $400k, no other debt, PAYG of approx $125k. House is located in outer east of melbourne. I have recently engaged a property advisory firm to help plan my next step. The advice is to keep the property in Melbourne, refinance as IO, free up funds to purchase investment most likely in QLD area. They are suggesting an IO loan on the QLD purchase. What are peoples thoughts, particularly the IO loan strategy at this stage in the market cycle? Would you advise going IO on both loans? combo of IO + P&I, or P&I only. Thoughts? Comments?
In the current lending environment, it's difficult to get lenders to accept IO on a PPOR, even if it is going to become an investment. Quite a few lenders have a simple, 'no', policy on this. Others will accept it on a case by case basis. Some would want it to be at investment rates, rather than owner occupier rates. A few things to consider: * IO loans will save you some cash flow in the first few years, but will cost you significantly more over the life of the loan. * If the options are a P&I loan at owner occupier rates, vs an IO loan at investment rates, the cash flow difference may not actually be that much (depends on rates and loan amount). * IO loans actually reduce your borrowing capacity in most cases. There are some very good reasons to go with IO loans that may align well with your investment strategy, but the common thinking up until the last few years is to simply go with IO by default. I believe this question needs more consideration in line with the borrowers objectives, plans and circumstances.
Good views Peter. Sometimes I wonder if some "property advisers" are influenced to recommend IO so that more than one acquisition can occur. Who benefits ? The adviser. Any proposed projections should consider the high P&I impacts after the first few years. Personally I think independent credit advice may avoid spruiker recommendations which can create a debt trap.
One thing you may want to consider if you're going to invest in QLD is if you're ever going to be overseas for more than 6 months at a time. If you are, you'll potentially be hit with the new absentee land tax which lots of people are complaining about as it is very expensive. There is a minimum land value for it though, so you'd have to check that out.
Is that 1 6 months at one hit without returning to Queensland 2 6 months collectively in one calender year 3 6 months in total over several years 4 does that include 6 months in NZ
