Just starting out with my first IP & am keen to get your advice on how to best manage it while still carrying a mortgage on my PPOR.
Am I best to go IO on the IP & concentrate on paying any extra funds off my PPOR, rather than add a larger amount to top up IP by paying P & I loan? I will still need to top up IP even at IO but not to the extent as P & I.
I asked this of my lending officer but she wasn’t keen on IO for some reason but from what I can gather from these forums she might not be giving me good advice????
Any help would be appreciated!TerrywParticipant@terrywJoin Date: 2001Post Count: 16,213
If you start paying PI that means you are diverting funds from your home loan (what you could have been using to pay of your home loan). Remember home loans are private expenses so the interest will not be deductible like an investment loanBMWParticipant@bmwJoin Date: 2012Post Count: 25bigmama wrote:I asked this of my lending officer but she wasn't keen on IO for some reason but from what I can gather from these forums she might not be giving me good advice???? !
Never take the banks advise as to being in your interest, they look after their own not yours.
IO on the IP is a no brainer whilst you have non deductible debtPLCParticipant@plcJoin Date: 2012Post Count: 400
As per the two posts above, the goal should always be to pay your PPOR debt down rather than an IP debt.
It could be taken one step further if you are thinking at converting your current PPOR into an IP down the track to even change that to an IO loan with 100% offset.Jamie MooreParticipant@jamie-mJoin Date: 2010Post Count: 5,069
I like keeping all loans as IO with an offset against the PPOR.
This provides maximum flexiblity – for both longer term taxation implications (if you ever decide to turn the PPOR into an IP) and gives you more control over cashflow.
If you're not disciplined with money and think you'd only make the minimal interest repayments on the PPOR loan than I'd keep it as P&I.
Thanks for your input people. You have confirmed what I’d already thought, will now structure the loan for the IP as IO & continue to reduce my personal debt first.
A big thank you from a very appreciative first time investor.Richard TaylorParticipant@qlds007Join Date: 2003Post Count: 12,024
Taking it further from what has already been stated remember all you want to do is set up a sub loan secured against your PPOR equivalent to 20% of the anticipated new investment property purchase price + sufficient to cover the acqusition costs and then on a standalone basis (usually with a separate lender) you want to secure the 80% balance.
Most lenders will want to try and encourage you to cross collateralise your securities and wont understand why you want to go elsewhere for the new loan but then of course they are looking after their interest and not yours.
Your Mortgage Broker should be able to advise you further in this respect.
Yours in FinanceBMWParticipant@bmwJoin Date: 2012Post Count: 25
If its your first property, its definately worth talking to a broker. Don't fall into the cross collateralisation trap as Richard mentions above.
been there done that, it's a nightmare to when it comes to number 2.
Thanks for all your comments, IP has been set up as per your recommendations. I really appreciate your advise & hope this will be the first of many!