hi guys, can any tell me which would be better for a first property? obviously with an io loan your property is more positive but, could anyone tell me the pros and cons of each?
regards callumInterest only loan with 100% offset account.
Richard Taylor | Australia's leading private lender
Callum,
With interest only and an offset account you can save money in the offset account that can be used later for any purpose or as a deposit for your next property while at the same time reducing the interest charged on your loan via the offset account.
Your loan principle doesn't alter if you use the offset money for some other purpose.If you go principle and interest you are reducing your interest and principle but you have to redraw the money if you need it later and this makes it hard to claim for tax purposes.Because the ATO will notice the loan jumped up with the redraw and will be questioning you as to why it jumped up.
IO is the only way to go in my opinion. 100% offset is great too
reasons (some):
– Lower repayments
– same interest savings as if paying in the loan
– frees money up to invest elsewhere
– Less tax complications if you need to
– ability to pay like PI and reduce payments anytime without changing the loanTerryw | 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
Agree, agree and agree.
Doesn't matter if it's your first property or your 10th. The right structure should be interest only with 100% offset – ot saves you money and allows for flexibility.
Using duckster's example, a person came into my office and wanted to refinance an investment property that they had paid off 2 years ago that was on a P&I loan in order to purchase a new house to live in (non deductible debt as he is using it for personal purposes). He was frustrated that he was getting taxed on the rent and wanted to claim a deduction on the interest because he thought it was "attached" to his investment property.
If he had it as an interest only loan he could have avoided this mess!
Terryw wrote:IO is the only way to go in my opinion. 100% offset is great tooreasons (some):
– Lower repayments
– same interest savings as if paying in the loan
– frees money up to invest elsewhere
– Less tax complications if you need to
– ability to pay like PI and reduce payments anytime without changing the loanFor IO only, if the loan is stretched to the 30year loan, does it means the buyer can opt to change from IO to PI anytime during the
30year loan?nitrodrops wrote:Terryw wrote:IO is the only way to go in my opinion. 100% offset is great tooreasons (some):
– Lower repayments
– same interest savings as if paying in the loan
– frees money up to invest elsewhere
– Less tax complications if you need to
– ability to pay like PI and reduce payments anytime without changing the loanFor IO only, if the loan is stretched to the 30year loan, does it means the buyer can opt to change from IO to PI anytime during the
30year loan?Usually the Io period is for a fixed time like 5 or 10 years. After this it reverts to PI automatically.
If you start on IO you can always change it to PI by just paying extra each month so the loan is reducing.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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