2019 Money Magnet Symposium - Discover how to make, and keep, more money and achieve a financially empowered future
Viewing 20 posts - 1 through 20 (of 23 total)
  • Profile photo of LancehaterLancehater
    Participant
    @lancehater
    Join Date: 2008
    Post Count: 19

    Does anyone use p and I loans for their ip

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    Nope – I don't.

    Some people do. There's usually a few main reasons. Firstly, they're unaware that their finances can be structured in a better way. Secondly, there's a mental barrier (sometimes an older school way of thinking) that all debt is bad and must be paid down as soon as possible. Lastly – they might not have any personal debt and are in a position to start paying down investment debt.

    Cheers

    Jamie 

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of LancehaterLancehater
    Participant
    @lancehater
    Join Date: 2008
    Post Count: 19

    What happens though when  say 30 year loan reverts to p and I in 5-10 years and your payments go thru the roof as they are worked out on only 10-15 years to pay off

    Profile photo of Tony FlemingTony Fleming
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    @the-dark-knight
    Join Date: 2008
    Post Count: 396

    You can refinance and it is just a new loan so it can be extended to 30 years…A lot of people don''t pay back principal which astounds some as the banks are seen as greedy corporations and the common perception is you don''t want debt sometimes debt can be helpful you can look at it this way say you buy 2 investment properties now P and I and can never afford another IP due to not having a good enough cashflow. If you bought two properties on interest only you would have more money to play with so you could get more investment properties. More properties=cashflow/capitalgrowth/discounts(banks/property managers will give you discounts with larger portfolios. I wouldn''t worry about paying P&I but would consider an offset account.  

    Tony Fleming | Triumphant Property Group
    http://www.triumphantpropertygroup.com.au
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    NSW Buyer's Agent specialising in Western Sydney-Blue Mountains-Orange-Albury

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069
    kylieandronnie wrote:
    What happens though when  say 30 year loan reverts to p and I in 5-10 years and your payments go thru the roof as they are worked out on only 10-15 years to pay off

    normally try and extend the IO term with current lender or refinance to another.

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
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    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of LancehaterLancehater
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    @lancehater
    Join Date: 2008
    Post Count: 19

    And if you can't get refinance, you lose your house. I don't understand, what if your house has not gone up in value?

    Profile photo of Tony FlemingTony Fleming
    Participant
    @the-dark-knight
    Join Date: 2008
    Post Count: 396

    Than you have made a terrible investment choice…although don''t forget inflation will help a little.

    Tony Fleming | Triumphant Property Group
    http://www.triumphantpropertygroup.com.au
    Email Me | Phone Me

    NSW Buyer's Agent specialising in Western Sydney-Blue Mountains-Orange-Albury

    Profile photo of Tony FlemingTony Fleming
    Participant
    @the-dark-knight
    Join Date: 2008
    Post Count: 396

    Also i can't see why your bank wouldn't refinance think of the extra interest they would get.

    Tony Fleming | Triumphant Property Group
    http://www.triumphantpropertygroup.com.au
    Email Me | Phone Me

    NSW Buyer's Agent specialising in Western Sydney-Blue Mountains-Orange-Albury

    Profile photo of Jamie MooreJamie Moore
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    @jamie-m
    Join Date: 2010
    Post Count: 5,069
    kylieandronnie wrote:
    And if you can't get refinance, you lose your house. I don't understand, what if your house has not gone up in value?

    No doesn't work like that. That would only apply in repayment defaults – different situation completely.

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
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    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of kirbonavichkirbonavich
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    @kirbonavich
    Join Date: 2012
    Post Count: 23

    So when do you exactly pay the principle back on a "interest only" loan….  After all a debt must be paid back at some point right?

    What happens if every Tom, Dick & Harry's house go down in value and selling will cause them to go bankrupt?

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069
    kirbonavich wrote:
    So when do you exactly pay the principle back on a "interest only" loan….  After all a debt must be paid back at some point right?

    A good time to pay it down is after you've paid off all non-deductible debt.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of bullet46bullet46
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    @bullet46
    Join Date: 2011
    Post Count: 51

    Woah, Jamie M – You have me thinking now…

    We are about to move into one of our units upon completion. We'll own it outright, so does that mean I should have all my other Investment properties as P&I due to no longer having non-deductible debt?

    Profile photo of Jamie MooreJamie Moore
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    @jamie-m
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    Post Count: 5,069
    bullet46 wrote:
    Woah, Jamie M – You have me thinking now…

    We are about to move into one of our units upon completion. We'll own it outright, so does that mean I should have all my other Investment properties as P&I due to no longer having non-deductible debt?

    Not necessarily. Some people take comfort in paying down debt. Personally, if it were me – I'd keep everything IO and pop an offset against one of the loans. All of my spare cash/income would get paid into that offset. It provides me with greater control and maximum flexibility.

    It's important that you're disciplined with money when it comes to this structure though. Otherwise you might simply make the minimum IO repayments and not put any money in your offset. If that was to be the case, then P&I can be a better option because it's a forced method of savings in a way.

    Hope that makes sense.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of bullet46bullet46
    Participant
    @bullet46
    Join Date: 2011
    Post Count: 51

    Hi Jamie M,

    Yeah that is exactly what I thought.

    Just wasn't 100% sure if I was on the right path after reading previous comments.

    Thanks!

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    You're welcome – glad it helped :-)

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of WillisPWillisP
    Participant
    @willisp
    Join Date: 2012
    Post Count: 14
    Lancehater wrote:
    Does anyone use p and I loans for their ip

    Hello Lancehater,

    Currently it is how I've structured three IP's with the decision to do so predominantly based on the assumption that reducing mortgages in the traditional manner was the best way forward. Having said that though, in my circumstances it does not allow any flexibility  and the amount of principal that has been paid (plus a little extra) has not made too much of an impact in reducing the mortgages. I am currently looking at refinancing to interest only as I believe it will better suit my circumstances and goals.

    Regards,

    Will

    Profile photo of CatalystCatalyst
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    @catalyst
    Join Date: 2008
    Post Count: 1,404

    Hi Willis, I'm assuming you live in your dream home then and never plan to upgrade or spend extra money on a car or a holiday?  

    Because if you do you will be paying non deductible interest on the new home. The thing is you never know when you might need that excess money. If you lose your job or need the money then you will be withdrawing money which is non deductible? The thing is you don't know what the future holds

    That is the main reason people go IO and put excess funds into an offset account. If you then take it out all of the loan is still deductible.

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069
    Catalyst wrote:
     

    Because if you do you will be paying non deductible interest on the new home. The thing is you never know when you might need that excess money. If you lose your job or need the money then you will be withdrawing money which is non deductible? The thing is you don't know what the future holds

    .

    Spot on – it's about maximum flexibility, future planning and being in total control of your finances. For some people it's difficult to get their head around the concept – and it's understandable, the idea of not paying down debt as quickly as possible can seem quite strange. But providing you're making contributions to your offset account – it's essentially the same thing albeit with a number of big benefits.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of Eddy123Eddy123
    Member
    @eddy123
    Join Date: 2012
    Post Count: 24
    Catalyst wrote:
    That is the main reason people go IO and put excess funds into an offset account. If you then take it out all of the loan is still deductible.

    What do you mean by when you take it all out it is still deductible? How?

    Profile photo of CatalystCatalyst
    Participant
    @catalyst
    Join Date: 2008
    Post Count: 1,404

    The loan you take out on an investment is fully tax deductible. If you pay it down then the amount is reduced. If you then take money out of it to spend on (say) a car or a new home that amount is NOT deductible as you spent it on personal items.

    If you have the same account but with an offset you put any extra money into the offset so in effect you will be paying the same interest as if you were paying it down BUT the money in the offset is yours. You've just lent it to the loan. SO you can pull it out at any time and spend it on whatever you like and the loan then reverts to the full amount which IS ALL tax deductable.

    Hope that explains it. The offset gives you flexibility without changing your goals of paying down the property.

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