Strategies in financing loans

I am in the process of arranging a loan to finance an investment property.

I am not too sure about either using fixed loan interest or variables and for what terms 10 or 25 years.

I understand that maximum tax deductions is gained with fixed interest loans.

But then ,I would end up with maximum debts with negative gearing and also paying too much interests.The fixed loan has higher interest charges.

What is the best options ?

Deeply appreciated for any advice as soon as possible.

With kind regards
metta
 
Hi Metta

There are no "best" options, only ones that suit your comfort with debt and risk. Each of us here use differing strategies depending upon those comfort zones and the goals we wish to achieve.

Personally, and I am sure that the mortgage brokers like Rolf will give more accurate advice, I would sit down with a good mortgage broker and see what is available to you and then overlay that with your goals.

Good luck

Dale
 
Originally posted by metta
I understand that maximum tax deductions is gained with fixed interest loans.

No, whether you fix the interest rate or leave it variable has no direct bearing on the amount of tax deduction you will get.

I think you are referring to choosing an Interest Only (IO) loan rather than a Principal and Interest (P&I) loan.

IO loans are just that - you pay the interest only. The interest on a loan for an investment propety is usually fully tax deductible.

P&I loans require you to pay not only the interest, but also an amount of principal. Only the interest component of the repayment is tax deductible, not the principal part.

Some people prefer IO because it maximises the tax deductibility of your payments, and frees up cashflow to fund other investments.

Originally posted by metta
But then ,I would end up with maximum debts with negative gearing and also paying too much interests.The fixed loan has higher interest charges.

Yes, that is one disadvantage of Interest Only loans in that the outstanding balance of the loan never decreases unless you make your own payments off of the principal - your regular monthly payments do not decrease the balance at all since they are (by definition) interest only.

Originally posted by metta
What is the best options ?

Unfortunately Dale was quite correct here (as he always is), there is no "best option". Go see a good independent mortgage broker and they can go through your current situation and your financial goals and work out some solutions which may suit you better.
 
Hi Metta

There is NO right or wrong finance. For some people a 5 year fixed rate Interest only loan may suit both their future strategy and their risk profile.

Much depends on what else is going on in your life AND what you future goals are.

FIxed rate loans MAY be resrtictive while offering some surety in the size of the fixed repayments.

You should really have a chat with a good independent mortgage broker not so much about the loan product you want or need but about your future goals, because as has been often said you need to beging with the goal in mind.

Ta

Rolf
 
many thanks for advice

Dear friends in the investment communities,

Many thanks for the advise on fixed loans investment properties.

Going to see morgage broker for advice instead of the banker.

With Kind regards
metta:) :)
 
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