Hi there,
Being relatively new to the IP game having bought our first IP in late 2000, we are looking to refinance for flexibility to reinvest. Whilst the loan currently is P&I, we fell on our feet with a good little earner that has provided a positive cash flow, yet considerable capital growth as well (although this is sure to even out shortly).
Purchase Price - 96 000
P&I loan - 90 000
Rent - 190 p/w
Value (6 months after puchase) - 160 000
All reading and 'gurus' I have spoken to, advise getting rid of the P&I loan ASAP and refinancing with an IO loan.
Once again, whilst people speak of IO in glowing but broad terms I can not seem to get the finer detail of the general conditions of an IO loan. Whilst I understand the philosophy (ie maximum use of capital, control not ownership of the asset) - I am still unsure of the mechanics.
Primarily my question is this - what happens at the end of the term of an IO? ie Once the interest has been paid over the term, do you continue to pay interest on the principle or, is the principle simply then left for you to pay out at a time of your choosing without any further payment required beforehand?
IOs seem to be the holy grail for the property investor, but what are the pit falls?
Any comments appreciated.
Regards,
Reub
Being relatively new to the IP game having bought our first IP in late 2000, we are looking to refinance for flexibility to reinvest. Whilst the loan currently is P&I, we fell on our feet with a good little earner that has provided a positive cash flow, yet considerable capital growth as well (although this is sure to even out shortly).
Purchase Price - 96 000
P&I loan - 90 000
Rent - 190 p/w
Value (6 months after puchase) - 160 000
All reading and 'gurus' I have spoken to, advise getting rid of the P&I loan ASAP and refinancing with an IO loan.
Once again, whilst people speak of IO in glowing but broad terms I can not seem to get the finer detail of the general conditions of an IO loan. Whilst I understand the philosophy (ie maximum use of capital, control not ownership of the asset) - I am still unsure of the mechanics.
Primarily my question is this - what happens at the end of the term of an IO? ie Once the interest has been paid over the term, do you continue to pay interest on the principle or, is the principle simply then left for you to pay out at a time of your choosing without any further payment required beforehand?
IOs seem to be the holy grail for the property investor, but what are the pit falls?
Any comments appreciated.
Regards,
Reub