Just wondering what you veteran property investors use out of the two for investing…I understand Interst only provides better positive cashflow and Principal and Interest provides better gains over long term???
Cheers,
TonyTony Fleming | Triumphant Property Group
http://www.triumphantpropertygroup.com.au
Email MeNSW Buyer's Agent specialising in Western Sydney-Blue Mountains-Orange-Albury
I would get IO for all loans.
– IO lowers repayments, enabling you to afford more,
– helps when you hit cashflow problems
– allows you to pay PI instead and then to revert to IO if you hit problems
– keeps your tax deductions high while you can focus on reducing non-deductible debt.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
On the downside, IO in a falling market will mean that you may soon owe more than you have borrowed or that you will be unable to refinance as you no longer meet the criteria without mortgage insurance.
This is highlighted by margin calls on shares and the issues many people are having trying to refinance from higher fixed loans to lower rates.
IO works well in a rising market where you will build equity quickly (through the rise in the market).
Interesting to see both entirely valid arguments and I would say you both have acceptable reasoning.
Nevertheless, I think i would have to agree with Terry on keeping all loans interest only, as my focus would be to purchase properties in locations that will appreciate in value regardless of what is happening in the market.
Interest only is the way to go in a rising market, but today is another story.
TerryW is probably correct still, you can go for interest only to start and work your way to P & I or just put some cash into the loan when you get a bonus like tax refund etc to slowly make an impact and bring down your loan over time, thus releasing cash for other investments.
Interest Only with a 100% offset account.
Unless your oozing with cash, you're probably a battler like us who has goals, and some effective money management.
If you can't save, investing won't work for you.Just keep paying your extra savings into your owner occupied offset account. That extra principal from the other loans will go a long way to reducing your non deductible loan.
IO may not be good for those types that spend every spare cent they have. PI can be like forced savings.
But still i would not recommend PI on an investment until all non-deductible debt is paid off.
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
I agree pay down PPOR non – deductible debt first then concentrate on borrowing more for IP's and managing your cashflow like your own business.
In time inflation will eat up the debt, though it will take a while.
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