Dear all
I am thinking of refinancing my loan to a different lender who is offering better rates and upon reviewing whether I should choose interest only loan vs principle +interest loan I really want to get some expert opinions from everyone.
I believe interest only loans are flawed. The reason is all the lenders only give you the option of monthly payment for interest only loans instead of choice of weekly payment on a P+I loan. Now, we all know the more frequent you repayment are, the less interest you will pay. So, the banks are not stupid in designing their interest only loan as MONTHLY ONLY!
You may think as your offset account increases in money, the interest payment comes down. This is true but I really think it can go down a lot quicker if you are repaying on a weekly rather than a monthly basis. And of course, in order to repay weekly, you have to choose normal P+I loan.
Now, I have two interest only loans and are now thinking of changing to P+I loan with he refinancing due to the above reason. I know some people will argue interest only is good for short term cash flow and good for negative gearing. But I really think as long as you have reasonable cash reserve, we should pay P+I because in the long run it will save you hundreds of thousands in interest due to the monthly frequency flaw. As with negative gearing, I don't think it needs any more comments how flawed negative gearing system is.
My strategy in my investment properties is to buy and hold on term. So I really think paying it P+I should be the right strategy going forward. Happy to hear what everyone thinks of my theory above and feedback is greatly appreciated.
Cheers
I am thinking of refinancing my loan to a different lender who is offering better rates and upon reviewing whether I should choose interest only loan vs principle +interest loan I really want to get some expert opinions from everyone.
I believe interest only loans are flawed. The reason is all the lenders only give you the option of monthly payment for interest only loans instead of choice of weekly payment on a P+I loan. Now, we all know the more frequent you repayment are, the less interest you will pay. So, the banks are not stupid in designing their interest only loan as MONTHLY ONLY!
You may think as your offset account increases in money, the interest payment comes down. This is true but I really think it can go down a lot quicker if you are repaying on a weekly rather than a monthly basis. And of course, in order to repay weekly, you have to choose normal P+I loan.
Now, I have two interest only loans and are now thinking of changing to P+I loan with he refinancing due to the above reason. I know some people will argue interest only is good for short term cash flow and good for negative gearing. But I really think as long as you have reasonable cash reserve, we should pay P+I because in the long run it will save you hundreds of thousands in interest due to the monthly frequency flaw. As with negative gearing, I don't think it needs any more comments how flawed negative gearing system is.
My strategy in my investment properties is to buy and hold on term. So I really think paying it P+I should be the right strategy going forward. Happy to hear what everyone thinks of my theory above and feedback is greatly appreciated.
Cheers