House vs Units?

Sorry guys for sounding so stupid but how does a IO loan differ as apposed to normal mortgage loans? Also how does offset accounts work?

Cheers

 

Hi ZMan,

Loans have two components.

1. Principal, this is the amount you borrow; and
2. Interest, this is the cost of borrowing.

IO is Interest Only.
P&I is Principal and Interest.

For an Investment Property what Sim is saying is that you basically want to put as little as possible of your own money in and gear it to the max (though take into consideration Lenders Mortgage Insurance if the loan is more than 80% of the property value).

Borrowing money to invest is called leveraging. Leveraging is a multiplier, if you make a profit, your profit is magnified, if you make a loss, your loss is magnified.

Cheers,

Dan

 

Someone needs to write an intro article explaining the two loan types...or better yet we need a wiki so that we can add stuff directly.

 

Zman,

with IO loans you only pay the interest, the principle stays the same.
This is the best approach for investment loans as you don't want your tax reductible loan to be reducing.

Also, when buying an investment property you want to use as little of your own money as possible. Offset loans basically allow you to have your own money in a savings account and the daily balance in that account offsets the main loan so you end up paying less interest.

It's a very good idea and is essential if you are buying a place as your PPOR
because later if you decide to move and buy a new PPOR you can easily convert your old PPOR to an IP and simply withdraw the offset account money to max your old PPOR (& now IP) loan again.

I hope this make sense.
cheers

 

But also dont take there first answer....

My broker (same as Sim's) said "oh dont like your chances", now he has been able to get me 3 95% lends on an area banks wouldnt go about 70% 2 years ago...

Gotta love great finance people...

 

Whos your broker?

 

Stamp duty to go with FHOG?

Does anyone have any thoughts on whether the stamp duty concession is expected to go the way of FHOG in 12/09?

I was ready to enter the fray, pre-approval in hand, when I got a severe case of cold feet and am now postponing for 8 - 12 months

 

At this stage there's no indications to suggest that the SD concessions will be scrapped, but the boost package of $7K will be phased out by the end of this year. You're not alone in postponing a purchase but also be aware that many others are too, and a price drop is by no means a certainty, especially if everyone else also has the same thoughts....

 

Thanks Jacque!

My reasons for postponing are more because I'm still psyching myself up for the committment, less that I'm trying to time the market

 

What are you afraid of exactly?
It's as easy as 1 2 3 really. Once you decide you're going to invest, you just do it

Always think of the worse case scenarios and have an exit strategy for each one, and your decision will become a lot easier.