Hello
We are moving out of our PPoR and into a company home which is fully subsidised.
So we will be renting out our house during that time.
This is our only property and we dont have any investment properties.
Should we stick to P&I loan, or change to IO?
I know the trend for investment properties is to be IO, but this is our only residence and we really want to pay down our mortgage?
Not sure what is best so any advice would be great
Thankyou
Hi Boshie
It depends.
Do you have any other debt that's not tax deductible? Such as personal loans or credit card?
If so, focus on paying those down before you pay down the IP loan.
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]
I personally would go I/O and park additional funds in an offset account.
Wile, at this stage, you have plans to return 'home' – this isn't always the case. You may well find that you have outgrown your existing home, want to live somewhere else, or that your career takes you elsewhere. Any/all of these possibilities are very real and paying off your loan (using P & I) reduces all flexibility you may have had with your surplus funds as they have been used to pay off the house.
If, by chance, you do return home in the future a swag of your savings and pay off the loan then.
Agree with Derek – IO with an offset provides for optimal flexibility.
The only time I would advise against it is if you're not too good with money and would simply make the minimum interest repayments and blow the additional cash elsewhere.
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]
What if you don't end up moving back in and want to buy a new PPOR to live in?
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
Yes Terry, I dont think we'll be moving back in. Probably buy somewhere else and try to keep it if possible.
Then definitely convert to IO now.
When you purchase your new PPOR – set up a new offset against that loan and park your savings in there.
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]
Then i agree with Jamie. Paying down the old house any more will be tying you your cash which will mean less available for the new house which means higher non deductible interest and less tax saved.
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
In rising market I/O so you can minimse repayments and use the money 'saved' to fund other purchases – the logic being trying to add more assets to your portolio during the growth phase of a property cycle.
In a flat or declining market Chan argues that individuals should switch to P & I as organic equity growth is not going to come from the property market but rather from the practice of paying P & I. Much of the basis of his position centres on the belief that flat/declining property prices are often accompanied by recession and lower interest rates.
By paying P & I an investor maximises their wealth creation by saving interest (circa 6%) rather than having funds in the bank earning negligible interest.
His bottom line argument was that strategies used should vary for different stages of the property cycle.
Just putting it out there.
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