Anyone prefer P and I loans?

Hi I've just read a couple of investment books from the library(actually skipped through them (2 jobs and 2 toddlers will do that) ,one by Anita Bell (i think that's right) and Peter Spann. They both talk about starting with nothing to buying lots of investment properties in oz.

The Bell book prefers to pay out the loans by P and I, but the Spann book prefers IO and I've noticed on this forum most posters go for IO

Does anyone prefer P and I?
What am I roughly losing by paying P and I?

Earning 55k

I have an IP in Macquarie Fields Sydney bought 2005 180 k
Recently revalued 230k
Good tenant paying 240 per week =12500
Expenses (,stata +rates+pm) about 2300 + loan interest

Loan owing 160 k paying extra$ 500-1000 a month
 
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Do u sing too :)

sorry couldnt help that welcome.

Down to tin tacks.............what I believe would make the diff for you is simply cash flow....IO take less from your pocket, while the asset appreciates at the same rate.

Do u still have a PPOR loan ?

ta
rolf
 
Neil, we have always gone P & I on our investment loans.

Yes, I know paying IO is more tax effective, but we preferred the "slow and steady" approach.

Go with what works for you.
Marg
 
I have used both. Currently only using P&I, but looking towards a new IO loan (or two) in the new year. ;)

As Rolf has stated, P&I stifles cashflow and more often than not, cashflow is King.... but not always.
 
How is IO "more" tax effective ?
Because if you pay down principal, and later need to access those funds for private purposes, you've lost deductibility on that sum, whereas if the funds are in an offset instead, then you retain deductibility.

Of course, if you use a LOC rather than P&I, you've not gained any benefit.
 
Can you explain this more, I understand LOC means "Level of Credit"....
Actually, LOC is for "line of credit", which is a loan which acts like a big credit card, secured against a home. The balance can go up and down anywhere within the limit (such as 80% of the property's value), provided deposits equivalent to at least the month's interest charges are made each month.

These two blogs should clarify it for you:

Types of loan - P&I, I/O, LOC, offset...

LOC vs conventional (P&I or I/O) loan with offset - pros and cons, tax implications
 
Actually, LOC is for "line of credit", which is a loan which acts like a big credit card, secured against a home. The balance can go up and down anywhere within the limit (such as 80% of the property's value), provided deposits equivalent to at least the month's interest charges are made each month.

These two blogs should clarify it for you:

Types of loan - P&I, I/O, LOC, offset...

LOC vs conventional (P&I or I/O) loan with offset - pros and cons, tax implications


ok thanks for explaining that and I have added "LOC" to my Property Investment Glossary I'm putting together thanks. I will now read those pages....
 
Because if you pay down principal, and later need to access those funds for private purposes, you've lost deductibility on that sum, whereas if the funds are in an offset instead, then you retain deductibility.

Of course, if you use a LOC rather than P&I, you've not gained any benefit.

Son in one scenario, IO, you are paying the smae amount in deductble interest.

In the other, your interest payments reduce slightly due to owing less.

You are actually paying the bank less interest under P&I basically, as you are reuding the rincip against which interest is charged...

So you pay less interest, and you end up with less of a taxe return - sounds fair.....


If you want to start a LOC agnst your property, whetr you ahve paid down any principal or not, you can.

I dont see any difference except this"IF YOU NEED TO ACCESS MONEY YOU'VE PAID BACK" - I guess in a P&I youd start an LOC, with the IO you my have saved that money instead and therefore you jsut pull it out the offset account you put it into.

Considering all that properly, I'm still not 100% sure that IO is moe tax advantageous, it more cashflow advantageous and tht to me is personally important, but cant see the extra tax benefit

Cant someone use an offset a/c with a P& loan just like an offset ? Thus providing both their wants - ability to keep the whole loan dedutble in cse they feelthe need to raid reayments already made and pay down the principal which some consider to be perosnally important ?
 
Do u sing too :)

sorry couldnt help that welcome.

Down to tin tacks.............what I believe would make the diff for you is simply cash flow....IO take less from your pocket, while the asset appreciates at the same rate.
,
Do u still have a PPOR loan ?


rolf[/QUOTE
Hi Rolf,
Sorry not the real neil, just a fan and to anyone who hasn't heard the album Harvest check it out now

We are renting atm ,keeping it simple with the rugrats and all but I'm sure the 1 k + a month we use for rent can be better spent on a p p of r.

How would a new loan be structured? Would you advise converting the IP loan to IO to help with servicability ?
What costs are involved with doing that?
 
Hiya

I would convert the PI loan to IO swith 100 % offset simly because you should be saving the principal in your offset account for later application to a PPOR deposit /loan

ta
rolf
 
Cant someone use an offset a/c with a P& loan just like an offset ? Thus providing both their wants - ability to keep the whole loan dedutble in cse they feelthe need to raid reayments already made and pay down the principal which some consider to be perosnally important ?
The principal component of payments would still lose deductibility, though it's true you'd retain deductibility for "extra" payments.

Imagine a scenario where you take out a $300K loan, deposit into accounts the equivalent of P&I repayments until your net debt is reduced to $250K, and then you deposit an extra $50K lump sum for a while. Then you want to withdraw all the $100K you've deposited (above interest) to buy a nicer PPOR or some other private purpose.

1) I&O with offset: You pay interest into I/O loan, and the equivalent of principal payments into the offset. A few years down the track, have $300K loan and $50K in offset. You get a windfall of $50K and add that as a lump sum to the offset, meaning $300K I/O loan plus $100K in offset. A few months later, you can withdraw the $100K in the offset, and interest on $300K remains deductible.

2) P&I with offset: A few years down the track, your P&I balance is $250K. You deposit the $50K lump sum into the offset. You can withdraw the $50K lump sum from the offset, but interest on only $250K remains deductible. Even if you can redraw principal payments and redraw your P&I loan to $300K, your maximum deductibility is only $250K.
 
p&i? gosh, haven't used one of those for around 10 years - even on the ppor. better things to do with the extra cashflow, like put it in the offset account to raise deposit for next ip, or do reno on ppor to increase value.

p.s. at this stage i just see the ppor as another investment (and we buy them as such) - one we happen to live in.
 
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