Benefits of Interest Only

[Terry_w]

any tips for CBA?

Yes, refinance to a different lender!

 

[Scott No Mates]

here's the black cloud....

If you choose io there's always the risk of a market correction leaving you exposed to owing more than the property is worth as you haven't repaid any capital. This comes to light when you need to refinance and you get an adverse valuation.

 

[Corey Batt]

here's the black cloud....

If you choose io there's always the risk of a market correction leaving you exposed to owing more than the property is worth as you haven't repaid any capital. This comes to light when you need to refinance and you get an adverse valuation.

The idea however is that you're meant to be using those funds elsewhere productive, such as debt reduction of non-deductible debt.

The amount of debt paid off in the first 5 years is quite minimal, whereas there would no doubt have been growth which would have outstripped the 'equity gain' by paying down the debt through P&I.

Noting that debt reduction in general is a prudent and financially wise move over the long term is no doubt worth noting of course.

 

[Hatch]

just use Netbank

In most situations a switch to Interest Only can be done online via netbank so long as you are not changing loan amount or term. Look under Manage My Account and then select Home Loan and then under that you can change repayments from P&I to Interest Only.

 

[Hatch]

one more thing

If you are under the wealth or MAV package there is no cost to make the change

 

[eXc]

If you are under the wealth or MAV package there is no cost to make the change

thanks...if that is right...my broker was not aware...sigh

 

[Peter_Tersteeg]

If you are under the wealth or MAV package there is no cost to make the change

thanks...if that is right...my broker was not aware...sigh

Seriously? Either you misinterpreted what the broker was saying, or the broker has absolutely no clue about the product. This has got to be one of the most basic pieces of knowledge a broker should have. I simply can't conceive of a broker not knowing that the CBA doesn't charge a switch fee for their pro-pack!

 

[Paul@PFI]

Another benefit of an IO loan is many banks will allow prepayment of interest of up to 12mths....Can appeal to high wealth / income earners. In a year if they have "windfall" income which is one-off such an an employee share plan, CGT etc they can request prepaymnet of interest up to 12 mths. Doubles their tax deduction for loan interest on their IP. This offset the windfall income.

Thereafter they have an "in advance" problem. They must repeat process annually or face a year with no interest deduction.

Also IO loans dont appeal to ...debt averse taxpayers. ie those who dont want to loan but want to smash it fast. IO loans dont allow reductions usually. So its not for a high income earner seeking to build equity by making fast reductions to loan. Try telling a Greek / Italian aged 60 to take an IO loan..Good luck.

 

[Colin Rice]

The main difference is a psychological shift from the old school mentality of paying of debt ASAP, usually passed on by parents (not a bad thing in an off itself in certain circumstances) and going interest only and offsetting debt.

It has the same benefits but much greater flexibility as many previous comments have co-notated.