P/I OR I/O LOANS

From: Steve Mcleod


I AM LOOKING FOR PEOPLES IDEAS ON PRINCIPLE AND INTEREST Vs INTEREST ONLY LOANS OVER THE LONG TERM (10 YEARS) PLUS FOR RESIDENTIAL R/E ANY BOOK TITLES OR THOUGHTS WOULD BE APRECIATED. STEVE
 
Last edited by a moderator:
W

WebBoard

Guest
Reply: 1
From: Chris G


Hi Steve,

This topic has been/will be debated for a long time with both sides having valid points.

My views...

I/O loans are personally what I plan to use as they lower the repayments required and also 100% of the payment is deductible. (Interest is deductible..principle is not)You can then use the extra money to build towards a deposit for your next property. (park it in an offset account to effectively reduce your principle until you want to use the $ for a deposit)

If you hold the property your loan amount will eventually be insignificant eg 100k prop...80k loan..grows in value at 10% PA...double in 7 years...doubles again another 7years...value is 400k in 14 years..loan is still 80k and becoming less significant the more the prop grows in value.

I know there are a forumites who prefer P/I loans and no doubt they will post replies too. Someone even had a spreadsheet comparing the 2 over a long period (suggested that P/I was actually better if i recall)

hope this helps
Cheers
Chris
 
Last edited by a moderator:
W

WebBoard

Guest
Reply: 1.1
From: Anonymous


Hi Steve,

I agree with Chris i prefer IO as frees up your money,enables you as an investor to be able to afford another property with the repayments you are saving (lets face it more is better than one).If you currently have a home loan then you should be directing your funds towards the home loan,in this case IO is better for you.I don't believe anything to be negative about P/I besides, as Chris mentioned not being able to claim it on tax.
Useful books may be Jan Somers More Wealth from residential property -that's if you haven't already read it!
GoodLuck
JP
 
Last edited by a moderator:

Sim

Administrator
Reply: 1.1.1
From: Sim' Hampel


The previous posts are correct in the ability of IO loans to allow you to keep more cashflow available in the short term for other investments.

Just remember that IO will ALWAYS cost you more in the long run, even taking inflation into account, as your interest costs never decrease as they do with P&I. It's what you are able to do with the cashflow in the short term that may make IO a better choice for you.

 
Last edited:
Top