Hey I just have a quick question guys. I have a mortgage on an investment property which I am negatively geared and am only paying off interest. I havent paid off any of the principal for about a year since I switched my loan to interest only. My question is should I start to slowly pay off the principal or or just stick with the interest only???????????
Thanks…
No don't pay off the principal. Get yourself an offset account instead and put all your spare cash in there instead. It will have the same effect. The difference is that one day when you decide you want to access that cash, you can withdraw it whenever you want and use it (eg for a deposit on another property). If you pay it towards the principal however, there is always a FEE to get the bank to give you the money back to you again.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
yes being in a negatively geared position and only paying the interest can work out ok but I do believe that there is a good feeling about getting a property into a positively geared position as then you are making money and are in a great position to perhaps invest once again! – there is a good feeling about owning more of a property than just "25%" for instance!
there are advantages in not paying or paying off more of the principal. The decision can sometimes come down to your cash flow position too! If you lose your job or your cash flow is very minimal then not being too far negatively geared can be comforting!
proptyman wrote:yes being in a negatively geared position and only paying the interest can work out ok but I do believe that there is a good feeling about getting a property into a positively geared position as then you are making money and are in a great position to perhaps invest once again! – there is a good feeling about owning more of a property than just "25%" for instance!Feelings won't make you money. Paying off a loan only puts you in a great position to buy again IF the bank will let you withdraw the money you paid THEM. If it's in an offset account you are paying the same interest as you would if you paid the loan down BUT the money is yours to do with what you want. ie buy another property, have a holiday- whatever. You do not need the banks permission.
proptyman wrote:there are advantages in not paying or paying off more of the principal. The decision can sometimes come down to your cash flow position too! If you lose your job or your cash flow is very minimal then not being too far negatively geared can be comforting!Again. If the money is in an offset it's YOURS to withdraw if you like. Try asking the bank to give you some of the money you've paid off your loan when you have no job. hahaha. WILL NOT happen.
Hey thanks heaps guys, I'll have to contact my bank tomorrow and see if I can set up an offset account…. Thanks again!!!!!!!!!
I agree with catalyst and Jac M.
Do you have any non-deductible debt such as a PPOR or car loan? If so, I'd be aiming to pay those down first.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
fyi if you are with the Commonwealth Bank, they call their offset account a "MISA" account
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Isiah Thomas wrote:Hey I just have a quick question guys. I have a mortgage on an investment property which I am negatively geared and am only paying off interest. I havent paid off any of the principal for about a year since I switched my loan to interest only. My question is should I start to slowly pay off the principal or or just stick with the interest only???????????Thanks…
If you have non deductible debt then paying the loan down on an investment property will be like throwing tax deductions away.
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
Don't forget to check on the fee's charged for the setup and ongoing account keeping fees.
Some charge and some don't, I was in the process of setting up an offset on my PPOR till I saw the charges so I asked the question and researched a bit more and in the end there was no charge to have excess $$ in the mortgage account offsetting interest and all online transfers were fee/free or charge.
The above obviously wouldn't work for an IP if funds were withdrawn for personal use so an offset account would work there.
Twafy also doesnt work for a PPOR if you ever decide to rent the property out….. and you woould be suprised how many clients decide to take that path.
The few dollars a month your lender may charge for the offset account will made up several dozen times over the course of the loan.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Qlds007 wrote:Twafy also doesnt work for a PPOR if you ever decide to rent the property out….. and you woould be suprised how many clients decide to take that path.Hi Richard
I'd love to hear a bit more about this if you have a moment… not 100% sure you mean?
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Watch funding costs carefully and make sure you know the exact point at which your funding costs will make the property neutral. Offset. Non Deductible debt first but here is the MOST important thing. Put your extra cash somewhere you can get it back if you need it. Eg if you pay out your car loan that cash is gone. Think cashflow casflow cashflow in your portfolio. Keep in charge of who and how your cash is managed.
Don Nicolussi | Mortgage Broker - Home Loan Warehouse
http://homeloanwarehouse.com.au
Email Me | Phone Me"I think of finance as a technology, a way of getting things done." Robert Shiller
Offset all the way. The only ones i have P & I is a investment i want to move into in a year or so and a 50k property i only pay like $12 a week to pay it down so i dont even notice it come out.
Tony Fleming | Triumphant Property Group
http://www.triumphantpropertygroup.com.au
Email MeNSW Buyer's Agent specialising in Western Sydney-Blue Mountains-Orange-Albury
Hi Jac
Reason being is if you rent out your current PPOR and you have paid down the principal you cant claim the interest on the redrawn amount.
I have had many clients who are so excited that they have paid down their own home loan and then decide to keep the existing property, rent it out and buy another PPOR only to find the new loan is non Tax deductible. Had they kept their PPOR loan as an Interest only loan with 100% offset account of course they could delatch the offset account and the interest on the entire debt (even though iit was the old PPOR would still be deductible).
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Thanks for clarifying Richard – I had thought you were suggesting the offset account idea wouldn't work on a PPOR converted to an IP and couldn't work out why. Thanks for taking time to clear that up!
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
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