agreed ....
Who borrows interest only loans and who pays I terest and principle pls
- Thread starter motivated 5555
- Start date
agreed ....
So form this I understand:
- the present tenants and past owners have a mortgage and are using your money to pay back the loan
- when you have fully paid it out they transfer title
How did you get over these issues?- Do you have any guarantee they are using the money to pay down their debt and interest? and spending it at Las Vegas?
- Do you have first call on the title or does the original mortgagor have first call? Like in bankruptcy, secured and non secured creditor.
- Does title come free of other debts like council rates, state taxes, etc..
Interesting.
Peter 14.7
Can I ask the obvious but does everyone here understand that paying P & I on an investment means only the Interest is tax deductible?
AND
that if you redraw the principal you cannot claim Interest on the redraw amount.
Peter 14.7
AND
that if you redraw the principal you cannot claim Interest on the redraw amount.
Peter 14.7
Can I ask the obvious but does everyone here understand that paying P & I on an investment means only the Interest is tax deductible?
AND
that if you redraw the principal you cannot claim Interest on the redraw amount.
Peter 14.7
Unless it's for "income-producing purposes", ie, investment. But agree - it would get messy.
So form this I understand:
To me this seems very risky for you.
- the present tenants and past owners have a mortgage and are using your money to pay back the loan
- when you have fully paid it out they transfer title
I don't see why the vendor would do this? Unless what you paid was above the market allowing for the twenty payments as a whole but still the issues above remain. You seem to carry all the risk.
- Do you have any guarantee they are using the money to pay down their debt and interest? and spending it at Las Vegas?
- Do you have first call on the title or does the original mortgagor have first call? Like in bankruptcy, secured and non secured creditor.
- Does title come free of other debts like council rates, state taxes, etc..
Interesting.
Peter 14.7
Not risky for us at all.
We bought this property very cheap ..actually $20K.The previous owners paid $32K about 10 years previously. They are elderly,have no intention of returning to Canada, and this property is very basic..but it has potential.
The current tenants only have an Option.There is no mortgage on the property for them.
We offered to have the vendors to put a mortgage on the property, thus to protect their interests.The property was owned free and clear, so they didn't habe any emcumbrances on it. They were originally concerned we would stop paying,,and what would happen with their interests. We wanted to assure them, we were not concerned..as it is only $1k a month for 20 months (very cheap!)
We agree to pay property taxes and property insurance, and to include the vendor on the insurance policy as "interested parties".
We would never sell a property this way, but we will buy them
I can't believe we're still debating this.
IO is the way to go. Offset account is crucial. P and I is only if the bank forces you, no other reason.
It is NOT horses for courses. There is no other way.
IO is the way to go. Offset account is crucial. P and I is only if the bank forces you, no other reason.
It is NOT horses for courses. There is no other way.
Agree for the average investor but not always the case.
I have just taken a loan in a unit trust. There are 3 unit holders (all related). We have taken a 20 year term so we can get our exposure under 50% ASAP. If mine only I would keep I0 but because it is a one off and we all have a guarantee there we want to limit our exposure to the property (and each other).
Another scenario is would be someone with a buy sell strategy and no PPOR debt. If they are selling in 12 months who cares if it is offset or in the loan.
Then there is someone who is 60 and very high income. They might have 10 properties, minimal debt and 500k of super a couple of years away. In five years they might plan to retire sell 5 properties and live on the rent of the other 5. Offset might have no real benefit - or might not be important to the client.
Maybe these are not your average scenarios but if I had a broker that had determined my loan structure before understanding what my position and goals were; I'd boot him out the door...
There are hundreds of scenarios IO might not be wanted.
The young investor looking to grow their portfilo, have flexibly to reallocate funds, avoid debt contamination etc etc - YES - IO and offset is usually best however it's crazy to assume it is best for everyone regardless of their age, their goals and their personal circumstances.
Personally i'm not fazed by PI or IO because I wouldn't notice $100 per month. More interested in the bigger picture.
It depends on the individual situation you find yourself in. There may be a variety of reasons for paying off principle. For example: I need to sell a property this year which will require me to pay break fees on a mortgage locked in at 8.5% I am paying as much off the principle as I can before the sale of the property in order to reduce break costs.
It depends on the individual situation you find yourself in. There may be a variety of reasons for paying off principle. For example: I need to sell a property this year which will require me to pay break fees on a mortgage locked in at 8.5% I am paying as much off the principle as I can before the sale of the property in order to reduce break costs.
IO only on all my investment properties. All my spare cash is parked in an offset account against my PPOR
sure.................there are times where PI is VERY suitable ...but dont most variable IO facilities allow u to pay as much as you want in any case ?
ta
rolf
Can I ask the obvious but does everyone here understand that paying P & I on an investment means only the Interest is tax deductible?
AND
that if you redraw the principal you cannot claim Interest on the redraw amount.
Peter 14.7
If you redraw the principle/equity you paid on an existing IP to buy another IP, would the redrawn amount (which is essentially the deposit for other IP) be deductible on the basis that it was used to buy an income-producing asset?
Yep. Same if the redraw was from PPOR equity. It's the purpose of the loan, not the source/security that determines deductability.
It took me 3 times of buying and selling to finally figure out that Offset facility on IO for PPOR and IPs will save a lot in the long run. This is because:
- offset works the same way as paying P&I, the interest is calculated based on the net balance between the loan amount and the fund in the offset account (100% offset on variable loan and much less % i think 10% on a fixed rate loan).
- the fund in the offset account can be used for private purposes: Having the fund sitting in an offset account works best if you want to later on upgrade to a bigger/better house and wanting to rent out your old place: you can use the fund in the offset account to buy the new house and won't get into troule with the ATO, also paying interest only, you would be able to claim the maximum interest deduction for your old house as an investment property, which saved you thousands of dollars as well as you are not forced to sell your old house to buy a new house which might cost a lot in selling and buying costs.
- offset works the same way as paying P&I, the interest is calculated based on the net balance between the loan amount and the fund in the offset account (100% offset on variable loan and much less % i think 10% on a fixed rate loan).
- the fund in the offset account can be used for private purposes: Having the fund sitting in an offset account works best if you want to later on upgrade to a bigger/better house and wanting to rent out your old place: you can use the fund in the offset account to buy the new house and won't get into troule with the ATO, also paying interest only, you would be able to claim the maximum interest deduction for your old house as an investment property, which saved you thousands of dollars as well as you are not forced to sell your old house to buy a new house which might cost a lot in selling and buying costs.
Hi ladies and gents, I'm new here, so please go easy on me.
I've been reading these forums for a few weeks now - I've got a question regarding P&I vs IO loans.
The majority of posters here have IO loans, and multiple IPs, I understand that.
What I don't understand is - how are you able to get so many IO loans at once? Surely the banks will see that you are owing (say, $300000) on an existing IO loan, why would they lend you even more money to buy your second, or third, or fourth IP?
What are the guidelines the banks are working by?
I know that I'm missing something quite obvious, but I'm not sure what it is?
-Guest
I've been reading these forums for a few weeks now - I've got a question regarding P&I vs IO loans.
The majority of posters here have IO loans, and multiple IPs, I understand that.
What I don't understand is - how are you able to get so many IO loans at once? Surely the banks will see that you are owing (say, $300000) on an existing IO loan, why would they lend you even more money to buy your second, or third, or fourth IP?
What are the guidelines the banks are working by?
I know that I'm missing something quite obvious, but I'm not sure what it is?
-Guest
Hi guest
One of the major things is your capacity to pay a loan, eg 50k family income vs 150 k..............
Another one is the equity or depsoit you have available. The lower the loan amount to the value of the security the better the chances of getting a loan
ta
rolf
One of the major things is your capacity to pay a loan, eg 50k family income vs 150 k..............
Another one is the equity or depsoit you have available. The lower the loan amount to the value of the security the better the chances of getting a loan
ta
rolf
There is a time componant too which can make a substantial difference. For instance, my first IP cost $90500. This rented at $185pw. So, the bank will calculate part of the rental income into the equation to determine your capacity to pay.
This house is now worth about $240k, and rents for $340pw. So (presuming I hadn't already used the equity elsewhere) now I have a ton of equity sitting there, my income from wages has increased over time AND so has the rent.
I can now go to the bank and get another loan, drawing down the equity as my deposit and buy again. Once again the bank will look at the capacity to pay, but because I have substantial rental income from the existing property, combined with my new rent from the new property(s), even if my wages have only kept pace with inflation will still enable me to purchase perhaps three homes of similar value to the original purchase.
This house is now worth about $240k, and rents for $340pw. So (presuming I hadn't already used the equity elsewhere) now I have a ton of equity sitting there, my income from wages has increased over time AND so has the rent.
I can now go to the bank and get another loan, drawing down the equity as my deposit and buy again. Once again the bank will look at the capacity to pay, but because I have substantial rental income from the existing property, combined with my new rent from the new property(s), even if my wages have only kept pace with inflation will still enable me to purchase perhaps three homes of similar value to the original purchase.
