When buying an investment property, I’ve heard that getting aninterest only loan is the best way to go. If so why are the reasons. I currently have a principal and interest loan on my investment property. I am thinking whether I should change.
If you have any nondeductible debt (home loan, car loan etc) then your IP loan should be IO. This means you can commit all principal repayments to kill the nondeductible debt.
If this is your only debt it is not so important. I would still consider IO if you plan on buying multiple properties to build deposits and preserve cashflow.
If you are buying one IP to have forever and have no other debt then PI is an option I guess – but I would probably find a reason to argue against it [biggrin]
Does this make sense?
Simon Macks
Residential and Commercial Finance Broker
***NODOC @ 7.15% to 70% LVR***
[email protected]
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.
Thanx mate. so stick with PI?
Originally posted by Ko_starr:Thanx mate. so stick with PI?
Did you understand my post?
I have no idea of your situation so cannot advise. Perhaps your accountant can help make a decision.
Cheers,
Simon Macks
Residential and Commercial Finance Broker
***NODOC @ 7.15% to 70% LVR***
[email protected]
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.
Hi Ko,
Most investors who aim to have multiple properties use an Interest Only approach as it minimises outgoings for each property and enables them, in most cases, to assemble a portfolio of properties.
I suggest you jump onto one of those loan calculator websites and see what little impact you have in the early years of your loan – despite making the additional repayments.
http://www.realestate.com.au/cgi-bin/rsearch?a=loan&t=res
For example on a $200K loan taken out at 7% over 25 years monthly loan repayments are $1413/month. The same loan on an interest only basis is only $1166/month.
You will be surprised what you can do with the additional $300/month.
I would also add to Simon’s comment and say that in real terms one investment property is not going to do much for your long term future unless it is an exceptionally good property.
Derek
[email protected]
http://www.pis.theinvestorsclub.com.au
0409 882 958I think an IO loan is great as long as the difference between the IO and PI monthly payment is also invested. If not, I would stick with a PI loan because you are not only disciplining yourself to save better by having to meet the larger repayment, but building equity in your property faster by reducing the loan (and saving interest) and getting capital growth. With an IO loan you will only build equity with capital growth. Having said that, you can get an IO loan and still make principal payments whenever you want. I agree with Simon about using an IO loan on an IP if you have non deductible debt in order to eliminate that first.
Marco[biggrin]
My general advice is take interest only on your investment loan if you have a home loan of your own too – pay interest only of f the investment loan and as much as you can off the home loan. Only do this if you can afford it though – speak to your accountant or investment advisor for personal advice. If this doesnt make sense ask your accountant
Anita Marshall
Advanced Finance Solutions
http://www.advancedfinance.com.au
[email protected][specs]
You must be logged in to reply to this topic. If you don't have an account, you can register here.
