Fully Offset PPOR - IO

Discussion in 'Investment Strategy' started by Xewlz, 13th Aug, 2023.

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  1. Xewlz

    Xewlz Active Member

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    Hi All,

    I'd like to know your opinion on my situation. My wife will soon be going to Maternity Leave and we have the following:

    1. PPOR under wife's name, 240k owing (property valued close to 1m) - P&I Loan - Variable Loan 6.09%($1800/m)
    2. IP under my name, $460k owing (property valued close to $700k) - P&I Loan Fixed 1.98% until 2025 ($2200/m)

    We may purchase and move in the future so I was thinking if it's possible to do the current PPOR to an interest only loan for 5 years and have money in the offset with the same amount as the current loan ($240k) and not have any repayments for the next 5 years?

    We can then take that money out in the future once we move and effectively not have paid the loan down so there are claimable interest for Investment Purposes. Use that money to place into our new PPOR offset.

    Is that how it will work and if so, which banks would allow that?
     
    Xewlz, 13th Aug, 2023
    #1
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Yes possible
     
    Terry_w, 13th Aug, 2023
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  3. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Certainly possible, but be mindful most lenders dont like IO on PPOR loans and the rates are higher, which may be a moot point if you are fully offset

    ta
    rolf
     
    Rolf Latham, 13th Aug, 2023
    #3
  4. Xewlz

    Xewlz Active Member

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    Thank you for your replies!
     
    Xewlz, 13th Aug, 2023
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    Terry_w likes this.
  5. Xewlz

    Xewlz Active Member

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    Hello, just reviving this post.

    If we were to go IO on our current PPOR which would be fully offset (and we get a lender who will allow this, thus $0 monthly repayments) we are able to save a fair bit of money to go towards another property.

    However, there are a fair bit of articles suggesting to pay off PPOR asap as it is non deductible debt. Is the strategy I'm looking to do viable in the long run or am I creating a fantasy situation?
     
    Xewlz, 23rd Apr, 2024
    #5
  6. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Yes it is viable. But is it best use of your money?
     
    Terry_w, 23rd Apr, 2024
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  7. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    If your PPOR loan is fully offset using an IO loan, you have no effective "non deductible debt" as far as your cashflow goes. This assumes your borrowing capacity can work with an APRA lender.

    From a borrowing capacity POV, that loan limit, and the IO period will affect your borrowing capacity for any future purchases, so if thats an issue, one may need to let go of some of that cash and pay down and reduce the loan limit

    ta
    rolf
     
    Rolf Latham, 24th Apr, 2024
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    DrDollar likes this.
  8. wylie

    wylie Moderator Staff Member

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    You aren't paying interest now anyway.

    But if you move and turn the current PPOR into an IP, then you don't want to have repaid the debt.
     
    wylie, 24th Apr, 2024
    #8
    skater likes this.
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