G'day Leo,
you said
But how will I recoup all the interest I have paid over those years I am paying interest only? Just through tax deductions?
You may not know that the usual P&I loan takes 75% of its period to pay off just HALF of what you owe. Over that time, you are also paying Interest on the outstanding balance. HOW were you ever going to recoup that??????
Yes, I know it wouldn't be quite as much as IO, BUT you will still be paying Interest, even with P&I. In fact, for the first five years there is VERY LITTLE DIFFERENCE between the Interest on a P&I vs an IO loan !!!!
Now, how about an alternate scenario:- Let's say you do as Rolf suggested, and pay what you WOULD have paid on a P&I loan. How would that help???
1. First off, you can "redraw" without penalty at any time !!!
2. Offset is FAR BETTER than sticking any savings in a Bank account (you DON'T pay Tax on the Interest) so stick any extra savings into the Offset as well.
3. After a year or three, you may well have a sizable sum sitting there that can be used INSTANTLY to use as a deposit on another IP (try getting a Bank to "release" the funds you've paid back on a P&I loan? Certainly NOT instant, if AT ALL !!!!!!
4. If you really, really, REALLY can't sleep at night owing all that money to the Bank, you can always withdraw it from Offset and PAY IT OFF your mortgage...... (hopefully, though, you'd have grown a little, thought a little, and decided that IO is really the way to go - but it's YOUR choice !!!!)
So, you get the best of BOTH worlds - you decide WHEN, and you have the choice of CHANGING YOUR MIND by going Offset. By going P&I, you allow the Bank to call the shots.
Your call......
Regards,