Purpose of IO on positive geared property

[TheShuffler]

Just a quick one - our properties are all now cash flow positive from rent only. I am therefore thinking about switching to P&I to pay down the loans slowly however want to ask if there are other reasons for keeping them interest only??

Thanks

 

[C-mac]

Depends on where your overall investment strategy is at. Are you satisfied with the size of your portfolio? Or do you want to buy more? If its buy more, you probably wouldn't be best served to pay down capital on these other loans at this time.

 

[Of The Vultures]

There's nothing stopping you making extra repayments while keeping the loans IO. Going P&I commits you to a certain repayment amount, IO gives you the flexibility to pay as much/little as you want to on top of interest.

 

[The Y-man]

IO gives you the flexibility to pay as much/little as you want to on top of interest.

Yep - and IO with offset might be better still - unless you want to lock up you capital and have it unreachable for the rest or your life unless you sell the place......or you pay more fees etc at least....

The Y-man

 

[Rolf Latham]

Io variable is almost always pi at your option

Pi is almost always principal at the banks request

Most peops with ok money habits prefer their option, not the lenders

Park your chase against the loans in offset or redraw at worst is the usual advice


Ta

Rolf

 

[Redom]

Agree with Rolf. Best to keep your money in the offset and maintain the flexibility of keeping the funds available.

Note that some banks are incentivising P&I repayments (NAB did this recently) and this is likely to increase over time - regulators don't like interest only loans!

 

[TheShuffler]

Thanks for all the replies. We currently use the offset against the ppor so I think we're doing everything right. We have just gotten to the stage that I want to reduce all debt over time. Might still put every $ against the ppor and keep options open with the IPs. Cheers

 

[Redom]

Thanks for all the replies. We currently use the offset against the ppor so I think we're doing everything right. We have just gotten to the stage that I want to reduce all debt over time. Might still put every $ against the ppor and keep options open with the IPs. Cheers

Good idea - if you've still got PPOR debt, makes sense to put additional funds to paying that down (via the offset).

The IP debt is deductible (depending on your tax situation of course) - so it technically costs less after tax when compared to your PPOR debt.

Makes sense to pay the most expensive debt of first.

Cheers,
Redom

 

[Terry_w]

If you have a PPOR with an offset do you have non deductible debt? If so you would be better off paying this off first.

 

[Jamie M]

If you're good with money then I'd keep everything IO with an offset linked to a non deductible PPOR debt (if applicable).

If you don't have a non deductible loan - then link up the offset to the IP loan with the highest variable rate and channel all income/rent into that account.

Cheers

Jamie