P&I Repayments v IO Repayments

Viewing 7 posts - 1 through 7 (of 7 total)

david4000
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@david4000
Join Date: 2011
Post Count: 21
January 4, 2012 - 8:47 am
Hey everyone
I'm sure this has been debated to death and beyond in this forum and everywhere else, but I'd still like to hear everyone's opinions.
Which is the better way to structure your investment loans – Principal & Interest, or Interest-Only?
I know many investors favour IO for cashflow reasons but are there other considerations? Is there any merit in paying P & I on investment loans or is it a slow train to stagnation?
Can't wait to hear everyone's two cents!
Heath06
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@heath06
Join Date: 2003
Post Count: 6
January 4, 2012 - 9:34 am
Hi David
It depends on what your investment strategy is and also your current position. There is merit in both with the way the current market is at the moment.
I guess most people tend to go an IO as the higher the interest the better it is for tax deductions.
I personally have an IO set up with a 100% offset account for my IP. I like the flexibility of it and it also reduces the monthly loan repayments so I have more cashflow each month (which is being saved anyway).
Heath
Catalyst
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@catalyst
Join Date: 2008
Post Count: 1,404
January 4, 2012 - 9:50 am
You are severely limiting your options if you go P&I. In my opinion there is NO merit in P&I. EDIT (unless you are so hopeless you can't help but spend the extra money on useless junk).
If you really want to pay down the loan do it via an offset account. That way your interest will be the same as if you were P&I but you have the flexibility to withdraw the money if and when you like. You can use this for further deposits on future purchases if you wish. If you, however, pay down the loan you then havce to ask the bank if you can borrow it back. They may say no.
Also if it is a PPOR and you decide to change it into an investment property you have no interest to claim. But you will have non deductable interest on the new home.
Jamie Moore
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@jamie-m
Join Date: 2010
Post Count: 5,069
January 4, 2012 - 10:52 am
Agree with Catalyst above.
Do you have a PPOR or any other non-deductible debt? If so, paying principle of an investment debt is effectively throwing away money.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
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Terryw
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@terryw
Join Date: 2001
Post Count: 16,213
January 4, 2012 - 12:10 pm
You could be throwing money away by taking a PI loan.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
ledgend80
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@ledgend80
Join Date: 2011
Post Count: 27
January 4, 2012 - 12:19 pm
why not setup an IO with offset account pay the IO portion and then the difference between the IO and PI put into the offset account and use this as a kind of forced savings thus giving you money to use for the next property or have it there to payout the other loan when you get enough money if you want to go that way
just a thought
Richard Taylor
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@qlds007
Join Date: 2003
Post Count: 12,024
January 4, 2012 - 12:29 pm
Hi legend
That is what everyone is suggesting.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender