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  • Profile photo of Event HorizonEvent Horizon
    Member
    @event-horizon
    Join Date: 2008
    Post Count: 90

    hi guys and gals im a newby

    Just joined and heres my first post.

    Whats peoples view on having their PPOR with an IO loan..

    I kinda fell into this situation when i moved interstate and out of my PPOR  for a few years and rented it out and consiquently changed the loan structure from a standard P&I loan to IO. Now im back home and still have the IO loan. Before moving back I took advantage of the previous financial circumstances (cheap rent elsewhere) and bought a second IP. ITs a stretch to go back to P&I on my PPOR but possible if its the best solution. However i recently read that given that todays money is worth less every year due to inflation your better of with all loans on IO (if possible even delay the Interest payment if you can, some loans allow this) to take advantage of leveraging into potentially more property with the increased cash flow.

    whats are your thoughts, pros and cons

    Profile photo of yarposyarpos
    Member
    @yarpos
    Join Date: 2004
    Post Count: 247

    my (conservative) view is that its generally best to reduce non deductible interest as much as possible as soon as possible 

    I think what you are saying is basically true and is also true of paying down principal …. it becomes easier to do over time.   For me avoiding reducing long term interest costs is the more powerful option.

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Sorry but i hate to disagree with Yarpos but my preferred structure is an interest only loan with a 100% offset account for a PPOR loan.

    A combination of a reduction in non deductible interest as well as flexibility should the property ever be rented out again has to be the way forward.

    Remember you cannot claim the interest on a debt where it is redrawn after a principal deduction has taken place.

    Richard Taylor | Australia's leading private lender

    Profile photo of newbi2newbi2
    Member
    @newbi2
    Join Date: 2008
    Post Count: 227

    Me personally, I run my PPOR on IO the same as my IPs. The logic – it allows me the extra cashflow to fund the deals that I sell and I am able to then dump the profit onto the PPOR loan. Part of my goals is for a debt free PPOR by the end of next year. If I paid P&I and had not run the developments, I would not be as far ahead.

    All depends on what your ultimate goals are I guess.

    Have fun
    Mick

    Profile photo of Event HorizonEvent Horizon
    Member
    @event-horizon
    Join Date: 2008
    Post Count: 90

    hi newbi, qld007

    thats really helpful but i have some more questions for you

    Newbi2,


    do you mean you pay down your PPOR loan and reduce the loan amount with the profits of sales or do you place the cash in an offset account?  That leads me to another question. What happens to an IO loan when the offset account equals or is more than the loan amount. What the best plan off action at this point for PPOR loan.

    qld007 


    Yes that advise makes sense to me. Just wanted to know if i was paying principal and interest instead of IO with an offset account (currently 30K offsetting $150K against 750K house) would I be actually saving any money or does paying interest only on 120K the same thing, sorry I find this stuff hard to figure out, get my head around.

    thanks again guys

    Profile photo of yarposyarpos
    Member
    @yarpos
    Join Date: 2004
    Post Count: 247

    Yes I see what you mean Richard.  We are set up that way now with IPs but we were late starters and didnt even get into the game till our house in Oz was paid off  (living overseas for a few years back then)…..like I said , conservative  :-)

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Hi EH

    Yes the calculation when it comes to the interest saving is exactly the same.
     
    This of course assumes that your offset account is 100% offset and the interest is calculated daily and charged monthly. 

    Take my word for it not all lenders are the same………………..

    Richard Taylor | Australia's leading private lender

    Profile photo of Event HorizonEvent Horizon
    Member
    @event-horizon
    Join Date: 2008
    Post Count: 90

    Thanks so much richard for your professional advise and putting my mind at ease, I noticed you answered basically the same question I posted on another thread also before i read this one. You obviously do a bit of surfing and problem solving on this site. Good for you

    cheers

    Profile photo of newbi2newbi2
    Member
    @newbi2
    Join Date: 2008
    Post Count: 227

    Hi Eh,

    In my circumstances I pay down the PPOR, as that forms the basis of my strategy. Not to say this suits everyone, it just suits me. If I was repeating it with an IP in place of the PPOR then I would run it with an offset.

    Mick

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