Human Nature
- Thread starter Rolf Latham
- Start date
Great thread Rolf.
I have only failed on one client to get the IO with offset gospel across and that was because her Father was sitting in on the conversation. Without going into detail was not a detrimental decision as the client will be very unlikely to go beyond a PPOR. I still did my best in case this changes in the future.
In regards to the P&I argument for people with poor money management this goes with out saying and personally would not even mention it unless "change was in the air". Poor habits are rare in people with an investor mindset from my experience though and no doubt this young person was not in this category.
I predict he/she will return in the future and request a loan restructure especially if you point them here
I will be based from a financial planners office as of next week so we will no doubt have some interesting conversations around this very topic. I reckon I will win him over in about 5 minutes
I have only failed on one client to get the IO with offset gospel across and that was because her Father was sitting in on the conversation. Without going into detail was not a detrimental decision as the client will be very unlikely to go beyond a PPOR. I still did my best in case this changes in the future.
In regards to the P&I argument for people with poor money management this goes with out saying and personally would not even mention it unless "change was in the air". Poor habits are rare in people with an investor mindset from my experience though and no doubt this young person was not in this category.
I predict he/she will return in the future and request a loan restructure especially if you point them here
I will be based from a financial planners office as of next week so we will no doubt have some interesting conversations around this very topic. I reckon I will win him over in about 5 minutes
That?s true, interest only in other countries is usually only offered to borrowers in distress for a limited period only and with a much higher penalty interest rate.
I enquired about converting my Spanish mortgage to IO and I would have to pay many thousands of Euros to completely reapply for a new mortgage, plus I would lose my sub 2% rate and would pay closer to 5%. So no thanks.
Sounds like a ripper of a deal!
If it is a PPOR and you pay down the debt from 500k to say 100k and rent the property for $500/week or 26k a year you can only claim interest deductions on 100k or 5k/annum assuming an interest rate of 5%. You will pay tax on 21k putting all other available deductions aside.
Also if you set the loan up as I/O with offset from day 1 using the above scenario you would have 400k cash in an offset and be paying interest on 100k but still preserved the loan at 500k cause you have 400k in savings in the offset.
Has the same net effect but you control the cashflow not the bank and if you ever rent the property out you can take the 400k from the offset and use elswhere and have 25k interest deductions v 26k income via rent.
If you loose your job for example you have cash available to see you through.
Few other advantages but there the main ones.
Flexibility. With an offset, the cash is yours to do as you please and has zero effect on the tax deductibility or otherwise of the underlying loan.
If you pay the loan out on an IP, the only way to make any loan against it deductible again is to use the money for investment purposes. However, if you have the equivalent amount of money in the offset, leaving the loan at max amount, the effect is the same (ie. no interest paid), but you can use the cash for any purpose and the loan will remain deductible.
BR
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