Changing from P&I to IO. Pre-paying interest to reduce tax questions.

Discussion in 'Property Finance' started by crulj001, 26th Jun, 2014.

  1. crulj001

    crulj001 Member

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    Hi All

    Looking for a bit of advice here.. I think i'm on the right track but would like some reassurance after speaking with my accountant today.

    Situation is.

    Have a 2br unit in inner North Melbourne, bank valued at $400K, $191K principal owing. For 9 years been paying P&I. Unit solely in wife's name. Rented for $1550 pcm.

    Wife has just gone on maternity leave. Had 13/14 income of 140K.

    Proposal is to revert the property to IO, instead of P&I (has been P&I for 9 years). Remove the offset.
    Bank has offered fix rate <5%.

    Big question is, the proposal to pre-pay interest in 13/14 for the following 12 months (14/15) to reduce the wife's income as 14/15 will be a soft year for her not working.
    Do I need to be cautious of anything, or does this seem pretty sound.

    Thanks for all your help.
     
  2. Terry_w

    Terry_w Member

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    Time - you have 2 business days to do this!
     
  3. crulj001

    crulj001 Member

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    Touche! Just need to sign the forms.. its good to go!
     
  4. tobe

    tobe Mortgage Broker

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    I doubt your lender will be able to process the form and draw down the loan prior to the EOFY, I guess if they dont your no worse off than you were originally. let us know how you go.
     
  5. crulj001

    crulj001 Member

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    Good news.. It was approved mid morning. All done. The benefits of using a smaller bank... they bend over backwards to make it work!
     
  6. Terry_w

    Terry_w Member

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    good news - but was the interest paid by you today?
     
  7. crulj001

    crulj001 Member

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    Yes, absolutely. The loan was drawn down, and interest paid up front by midday. A terrific outcome at short notice. Cheers
     
  8. Terry_w

    Terry_w Member

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    amazing response time!
     
  9. tobe

    tobe Mortgage Broker

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    great result.
     
  10. KT_Blues

    KT_Blues Member

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    Wow, what a great idea. I wish I had an accountant like that. And I wish I done that before going on maternity leave :-(
    Mine just makes mistakes and charges me for them. Last time he even told me that I am out of my mind asking for money back or discount because his fees are tax deductible.