Hi Everyone
Another question (hope I am not bothering anyone).
What do you tend to use for IPs, principal and interest loans or interest only loans? If you use an interest only loan do you do this for the life of the loan or for a limited period before it becomes principal and interest? I am not sure how a loan could be an interest only loan for the life of the loan as this would mean that you would never end up outright owning the property at the end of the loan. Could someone explain this to me?
Sorry if this question is obvious but am still learning the ropes.
Thanks and cheers,
Leilah
I use IO to maximise cashflow.
When I have accumulated enough property I will start on the Principal. I honestly don't care if I never pay off the properties and die with a debt. I don't feel the need to own anything outright.
I just want the rising capital value and the rising income streams. I let inflation take care of the property value.
My parents bout Sydney waterfront in the 70's. If they never paid down their loan they would owe $40K on a property worth in excess of $2M . Do you think never "owning" that property would worry them??
This concept of having to pay off a property is a mental block that all newcomers to investing must tackle.
Cheers,
Hi Leilah. After a certain period, the loan converts from interest only (say, 1st 10 years) to P&I for the remaining term (last 20 years) with payments adjusted acordingly.Hard to plan that far ahead eh? All the best.
Yes, IO will maximise your cash flow as Simon said
Xenia wrote:Yes, IO will maximise your cash flow as Simon saidIO will also maximise your deductions as you will have a constant debt for that property which is tax-deductable and not a decreasing one.
Chris.
All our developments and IPs are IO for most of the reasons posted above.
(But I do have P&I on my PPOR, as it was mt first property that I purchased 8 years ago and wasn't interested in IPs at that stage!)Hopefully the value of the house goes up in value over time where as the loan balance remains the same.
IO
At least with IO you have the choice of paying extra when you have the money (like a PI loan) and can then reduce your repayments if need be. With a PI loan you are stuck in paying PI.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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