Who borrows interest only loans and who pays I terest and principle pls

[rugrat]

I thought I should also mention that both my PPOR and my IP are leveraged quite highly: about 93.5% LVR in total, and although I don't have any problems carrying a high LVR: if we can lower our PPOR mortgage abit, We will then be able to increase our (investment) LOC which can then be used to fund deposits for more investments. So debt recycling a little bit.

 

[Tom-B]

Hi

I am P+I + Offset on my PPOR for a few reasons - in order of importance / releveance:

- Psychological - if I didn't pay down this debt and had it available in offset, I'd continue to use it to fund IPs. I'm cautious not to do this, and want to ensure that if all comes crashing down around me, I'm left with my PPOR and with any luck it's not mortgaged to the hilt, as I have paid down principal.

- Psychological - I like to think that I am working towards owning my own home outright, whilst continuing to grow a solid base of investments (largely being IPs)

- I don't plan to move out of my PPOR ever to turn it into IP, so contamination is not a concern.

 

[ashalim]

Interest Only

 

[alexlee]

- Psychological - if I didn't pay down this debt and had it available in offset, I'd continue to use it to fund IPs. I'm cautious not to do this, and want to ensure that if all comes crashing down around me, I'm left with my PPOR and with any luck it's not mortgaged to the hilt, as I have paid down principal.

You're aware that if both the PPOR and IP are held in your own name, if the IPs crash you lose the PPOR as well?

 

[skater]

I have a mix of IO & P&I.

The main reason for this is that the lender who has most of the Business in my Trust will not let me have IO after the initial period and since many of the lenders are wary of Trusts at the moment, I'm more or less stuck with them.

The PPOR is P&I and I am in the process of recycling debt on this one, so as soon as I get a certain amount in redraw, I take it out again, but in another loan (split facility) on the same property. We do a change of limits on each section.

Hmmm.....I didn't explain that very well. Let me try again. Suppose I have a split facility with a limit of $300k on one split and a limit of $20k on the other. As I build up a redraw of say, $20k in the $300k section I do a substitution, changing the limit of the first section to $280k and the second section to $40k, thus increasing the deductable portion and decreasing the non-deductable portion.

 

[kathryn d]

The only situation where paying off principal is better than putting the money into an offset is if you don't have the discipline to not spend the offset money.

Or the lender will not give you that option..as with us.

 

[The Y-man]

Or the lender will not give you that option..as with us.

Agree - only time we have had PI (until refinancing) was when settlement was looming and we were running around trying to look for a lender (when the supply from our normal one stopped). We had to make do with whatever we could get.

The Y-man

 

[Amadio]

We have one property where we pay Principal Only.

This sounds interesting. How does the lender get paid?

 

[Tebby]

IO and offset on all

 

[kathryn d]

This sounds interesting. How does the lender get paid?

It was a property that was cosmetically ugly, structurally great, and the owners were 2 elderly sisters who lived in the USA.They sold it at a loss of 33% of what they paid for it years ago.
We offered them installment payments over 20 months, at no interest.
They were so happy to have it sold, they said yes.
....15 payments to go

PS..we would have paid interest if they asked

 

[bluestorm]

The only situation where paying off principal is better than putting the money into an offset is if you don't have the discipline to not spend the offset money.

Makes little different financially. If anything, the same institutions can have a cheaper comparison interest rate on the IO +redraw loan, than the IO+offset products, so you save a bit.

I'm IO+redraw currently on 3 IP's. For me, it's psychological, and a retirement goal in 7yrs (at 42). Knowing that we'll only use the redraw for investment purposes rather than offset on personal toys/fancier PPOR's etc, helps stick to the goal, while still enjoying life.

Psychological - seeing the loan balance go down, just "feels" like you are nearing the goal slowly. (while it may be no different to offset).

 

[buster]

All my bank financed properties are interest only lines of credit. Have 2 vendor financed properties that are principal only. I dont like the idea of P+I loans, its got to be one or the other. I have 2 loans tho on the one property,one intererest only, the other principal only. Great leveraging.

 

[jroth]

All of mine are IO with an Offset on the PPOR.

I have put some consideration into paying down a bit of the PPOR mortgage purely because my wife doesn't have quite the same financial self-control that I think I have and gets much more tempted to use bits from the offset as it builds up.

We're still quite highly leveraged as we're in our 20's and it's early in our accumulation phase.

 

[Ms Jade]

Another one for IO + offset for both PPOR & IPs

 

[Jamie M]

IO for IPs

IO with offset for PPOR

 

[ianvestor]

It was a property that was cosmetically ugly, structurally great...
We offered them installment payments over 20 months, at no interest.

Hi Kathryn, did you have this drawn up in a written contract? If so, is there any provision in the contract for interest to accrue on late installments? Is there anything at all in the contract that outlines each party's responsibilities in the event of a late installment?

 

[Tiggy]

We have two properties. Pay interest only on the investment property to maximise tax benefits, but pay P & I on the other, a beautiful block on the water with no tax benefits (but see my question below).

As I am a newbie on the forum, am I allowed to also ask a question here? I know you can claim interest on land if you intend to build an investment property on it, but does anyone what the time limit is before you have to build? I have scoured the ATO website and can not see a definitve time. Someone told me they thought it was 2 years.

 

[Tillie]

I have PPOR P+I with redraw facility. Reason: purely psycological, not making financial sense It makes us feeling good when seeing the loan balance going down every month. Technically offset would do the same thing, but like I said it is all there between ears

As a newbie in the property investment field I would like to know, how you are planning to pay the loan off eventually if you pay only interest not principle at all. Or is the plan to buy now IP and sell few years later, hope some capital growth and use the profit to pay off the loan in other IPs?

 

[RumpledElf]

We had to make do with whatever we could get.

This is us.

Currently paying P&I on both loans (even when one was an IP) but one house is for sale so that loan is going to vanish soonish. Other needs refinancing out, and our best loan option has some weirdass deal where part of the loan is P&I and the other part is interest free.

We have enough cash sitting in a high interest account - NOT an offset - to pay out one loan or almost pay out the other. The reason? We'd rather have the interest to make our deposit bigger than offset interest on a loan that is only going to get closed within a few months. We still have to make the same repayments regardless, in the short term we end up behind not ahead if the money is against the loan.

Next deal we do (if we can find some way to do it) will likely be under the business name so again, whatever we can get.

 

[kathryn d]

Hi Kathryn, did you have this drawn up in a written contract? If so, is there any provision in the contract for interest to accrue on late installments? Is there anything at all in the contract that outlines each party's responsibilities in the event of a late installment?

We had our lawyer draw it up.
If a payment was late it did allow for an interest charge.
The seller had a "mortgage" on it. Not sure if that is the proper word..but it would be the equivalent. When the last payment is made, we pay a fee, and have the mortgage released, so the property is unencumbered.

We also made sure in the case of a death, the estate would pay or heirs would continue with the contract.