What sort of impact will all this tightening of serviceability have on the market?

[Richard Feynman]

I think it's kinda like installing airbags in a car.

Won't have a major effect (though it'll have a nominal one) but is an important safety measure to put in place to avoid going splat in the worst case...like when someone unexpectedly pulls the handbrake.

 

[hugh72]

I bought a PPOR last year and elected interest only with offset account. Why would anyone pay P&I never understood that?

I mean the offset account acts like you are paying off principal anyway and you still have access to the money if you need it to buy another IP or reno or what ever.

IO repayments are like paying rent with the added benefit that you get that little extra CG where with renting you would not.

If you are good with money and put those savings into the offset account as opposed to spending it, I think you can't go wrong.

Or am I missing something fundamental here?


I have had people tell me that what I am doing is not so good as opposed to P&I. But I have a feeling these people don't understand how the offset account works.

No I don't think you are missing anything just that this strategy requires much more self control and not wasting funds which are readily available. It's probably not the best idea for many people who are more interested in appearances and keeping up with their neighbours latest purchases

 

[jerrybee]

No I don't think you are missing anything just that this strategy requires much more self control and not wasting funds which are readily available. It's probably not the best idea for many people who are more interested in appearances and keeping up with their neighbours latest purchases

Agree. Like the guy you quoted, I can't think of any scenario - whether it's a PPOR or IP, where it would make sense to take a P&I loan. The only one I can think of is as you said, if you're not good at managing money. Or you have a gambling problem. If you risk blowing it all, then P&I is a good way to force savings.

 

[Peter_Tersteeg]

I think it's kinda like installing airbags in a car.

That's actually quite a good analogy for the need for P&I repayments. Some people wouldn't need them, but for others they're a life saver.

I've met people with I/O loans that went nowhere. In 10 years they still owed the same amount of money on their PPOR, they'd never saved a cent. Their offset account had all their pay go in, and all of it come out. They hadn't done any other investing elsewhere.

Had they been on P&I repayments, during that decade they would have at least paid some of their house off. In the absence of anything else, it's a forces savings plan.

 

[BayView]

If you are good with money and put those savings into the offset account as opposed to spending it, I think you can't go wrong.

Or am I missing something fundamental here?

Key words there are;

"If you are good with money".

The figures are apparently that Australians spend 105% (or is it 110% now?) of their income.

The USA - folks spend 105% of their income last time I heard.

 

[WattleIdo]

I know it's simplistic but while IO loans are offered with much lower interest rates than P&I loans, they're obviously the better option.
I get the impression that IO is the new black and it's here to stay.

 

[danwatto]

I know it's simplistic but while IO loans are offered with much lower interest rates than P&I loans, they're obviously the better option.
I get the impression that IO is the new black and it's here to stay.

They have the same interest rates, always have for me..

 

[Zos]

Key words there are;

"If you are good with money".

The figures are apparently that Australians spend 105% (or is it 110% now?) of their income.

The USA - folks spend 105% of their income last time I heard.

Wow that is incredible, no self control. I did always wonder who is paying for all these brand new cars on the road.

 

[Rolf Latham]

I know it's simplistic but while IO loans are offered with much lower interest rates than P&I loans, they're obviously the better option.

nah

generally the same, but some lenders will provide lower pricing for PI.

IO is rarely at a lower rate

ta
rolf

 

[WattleIdo]

They have the same interest rates, always have for me..

Interesting.
In 2011 my IO loan was in the 7's and the P&I variable I changed to (for a switch fee of $200) was in the 6's. The P&I rate continued to drop and the IO stayed higher.
Now it's the other way around. I have a fixed IO with offset at 4.09 while my variable is at 4.82 going down to 4.6. Still considerably higher.

 

[danwatto]

The pricing is based on the product eg fixed investment loan.

IO is just an option, doesn't usually change the rate.

 

[WattleIdo]

It is what it is.