Investment/future PPOR on IO or PI repayments?

[pipsal]

I know IO is probably best for investment properties, but I have been paying PI since I purchased as even though investment at the moment, current IP is intended to be PPOR one day (still a few years away yet though).

Now that I am trying to move towards IP2 with tight equity, would moving across to IO for this loan be particularly beneficial? Servicability is not my problem for a new loan, its the deposit. It looks like it might give me an extra $650 or so a month that I could save up, on top of the $400 or so extra I already put into it. I know that's $1k a month, but the $650 is not necessarily going to have a massive impact on savings per month if there are negatives I'm not aware of to this. And theoretically if it is paying principal down on the loan, it is improving my equity slowly anyway isn't it??

After the IO period, the repayments will be much higher, depending on how long it is for....how do you experienced investors manage this? Are your PPOR's IO? Anyone with experience past the 10yr IO max (or 15 if I call it an investment loan for the bank)...Do you take the full IO time offered? Can it be rolled into another IO loan? Same qn. for investments I guess, do they get rolled into IO again? I imagine it isn't as much of an issue as rents will have caught up to some degree with the increased repayments required in 15yrs time, but PPOR is a bit different and depends on wages at the time, etc.

 

[Aaron_C]

All loans (including PPOR) as interest only. After 5 years refinance or go to a lender with longer interest only periods. The repayments aren't an issue.

 

[Terry_w]

Go IO and then you have the option of paying extra like a PI loan if and when you choose. You get the same results with extra flexibility and tax benefits along the way.

 

[Jamie M]

....how do you experienced investors manage this? Are your PPOR's IO?

Usually roll over another IO period. If current bank makes life difficult - then look to refi to another (pending lots of factors).

Generally speaking, I'm a fan of IO on all loans with an offset against the PPOR loan. If there's no PPOR in the mix, then an offset linked to one of the IP loans.

HOWEVER - if the person isn't disciplined with money and will simply make the minimum IO repayments without contributing to the offset then P&I may be a better choice because it's a forced way of saving.

Cheers

Jamie

 

[Greg Reid]

Pipsal, it depends on your goals.
If you are going to move into the current IP as a PPOR in the future, paying P&I will reduce your principal and the interest component by the time you do move in.
You can always refinance this to pull out equity to use as funds to settle another IP. If you want to build a property portfolio over time, it is better to conserve your capital to build your asset base. Once you are comfortable with your asset base, then pay down debt starting with your PPOR.
If you are comfortable with having one IP for the future and your current IP to convert to your PPOR and you can afford to make the P&I repayments, no harm in doing so.

That said, I wold agree with Jamie in principle.