When setting up a loan on an IP for positive gearing purposes,is an interest only loan always the way to go or principal and interest?
We assume that if we take out a principal and interest loan that still gives a little positive cashflow whilst also reducing principal,the gap will continue to widen and in the future(say 25 years)we will have positive cashflow properties with no liabilities.
Or,does it work out better to take out interest only to increase positive cashflow from day one,have more readily available funds for future purchases,and in years to come,as rent increases,so does cashflow?
Is interest only risky,for example,when interest rates rise?
We would appreciate as much feedback as possible.
Shane
sg
Basic principle is to reduce all non deductible debt before deuctible.
So if you have a home loan go IO on the IPs until it is gone.
All the best,
Simon Macks
Mortgage Broker
http://www.mortgagehunter.com.au
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
shane, it does also depend on your strategy after paying off the non deductible debt.
If you want to buy more properties, faster, then IO all the way helps towards that aim. If you want to feel ‘secure’ that your debt is decreasing, then you would probably want to take P&I loans.
All loans I have are IO…
Cheers
MelHi Shane,
All our IP loans are I/O while we have some non-deductible debt on our home. When we get to the position of owning our home outright then we will review the state of play.
All income is deposited into an account offset against our home loan – this way the ‘income’ helps reduce the interest for the period that it remains in the offset account. This too will be reattched to another loan when our home loan is paid off.
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
Thanks for the feedback everyone!
Do you think it is best to lock into a fixed term on any IO loans and what is the general strategy in the future for interest rate rises?
Has anyone been positive gearing long enough to remember when rates were around 18%,and if so,what could you do other than try to raise rent or sell?sg
Good question Shane, I was coming here to ask the same thing![biggrin]
Guys, I haven’t been investing whilst interest rates were 17-18% (I was school), but remember that at that same time inflation was at 10-11%, so ‘real’ interest rates weren’t that bad – really!!
I believe people did struggle, and would think that less people could afford to buy, therefore increasing the supply of tenants, increasing rents……
Cheers
MelDon’tforget folks tha twhen rates were that high the average mortgage was about $100 000.
Mortgages today are substantially higher whereas incomes haven’t risen comparably.
Cheers,
Simon Macks
Mortgage Broker
http://www.mortgagehunter.com.au
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Hey Shane,
Ive just I purchased a few months ago and I put mine onto a P&I loan.Befor you aks yes its +ive.For starters I stay at home and my outgoings are a joke.If I was out there with a morgage I would go IO untill I had cleared my morgage, wouldn’t want to over commit huh.“Why would you want to pay-off an IP” Our good friend Dolf
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