see this thread for my view:
http://www.somersoft.com/forums/showthread.php?t=55548
http://www.somersoft.com/forums/showthread.php?t=55548
Why would you choose P&I loan over IO?
- Thread starter barry2104
- Start date
Hiya PeterC
In general, for an average loan, the rate for a basic PI vs a pro pack IO isnt 50 pts
Often nothing, sometimes 10 or 20 pts
ta
rolf
In general, for an average loan, the rate for a basic PI vs a pro pack IO isnt 50 pts
Often nothing, sometimes 10 or 20 pts
ta
rolf
I dunno about you Sunfish, but I consider myself a very disciplined saver yet still go on O/S holidays yearly... you can have it both ways
Haha, me too, well not yearly but every 2 years is how its looking so far ; D
Getting cheap/free accommodation helps though ; D
Think I've mentioned it in other threads, but I like to have a portion of my total loans/ borrowings as P&I. At present, it is about 10% that is P&I.
As mentioned, there is probably not an entirely correct answer. It will come down to ones own ideas, goals, SANF, investment risk etc.
Regards
Marty
As mentioned, there is probably not an entirely correct answer. It will come down to ones own ideas, goals, SANF, investment risk etc.
Regards
Marty
Personally, I prefer IO; I'm all about cashflow at the moment and this helps greatly.
On the other hand, Dad was always P&I instead, right from the start. It always gave him great pleasure to see those loan amounts go down and I remember that he used to check the online banking once a month and pay off enough to drop it down to the next $1k, in addition to the existing P&I repayments.
Ie, loan balance $257,845 would be paid down to $257k, on top of whatever P&I was being paid already. The benefits compounded very quickly and he always told us that this meant his overall wealth was also compounding very quickly. Not only was the property value going up, the loan balance was going down.
Seems to have worked ok for him; he's rather enjoying his early retirement. I'll let you know how my strategy turns out in a few years.
On the other hand, Dad was always P&I instead, right from the start. It always gave him great pleasure to see those loan amounts go down and I remember that he used to check the online banking once a month and pay off enough to drop it down to the next $1k, in addition to the existing P&I repayments.
Ie, loan balance $257,845 would be paid down to $257k, on top of whatever P&I was being paid already. The benefits compounded very quickly and he always told us that this meant his overall wealth was also compounding very quickly. Not only was the property value going up, the loan balance was going down.
Seems to have worked ok for him; he's rather enjoying his early retirement. I'll let you know how my strategy turns out in a few years.
Flexibility
IO (and variable) for me.
You can, if you want or have some extra cash pay down the loan. You can do that every month mimicking a P&I. IO just gives you the flexibility in months where cashflow is tight to pay the minimum or redirecting those extra funds elsewhere
IO (and variable) for me.
You can, if you want or have some extra cash pay down the loan. You can do that every month mimicking a P&I. IO just gives you the flexibility in months where cashflow is tight to pay the minimum or redirecting those extra funds elsewhere
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I have no problem with that.
I just noted that saying you are a disciplined saver so don't need P&I and then saying you use the savings for discretionary spending is an oxymoron.For me the loans have always been I.O however I have always managed paying
back at what would be P.I + more.
Happy to have my properties paid off as soon as possible and get on with the next one.
Will not be many people on this forum working like that but for me it works
and this I'm comfortable with.
back at what would be P.I + more.
Happy to have my properties paid off as soon as possible and get on with the next one.
Will not be many people on this forum working like that but for me it works
and this I'm comfortable with.
HI, it all comes down to the personality of the borrower.
The danger with IO loans is that if interest rates increase sharply, there might be some stress with repayments. P&I loans are usually fixed even if variable, the P portion has brought the LVR down, thereby insulating against the pressure of high rates.
In the days before the offset acct, I found joy in the overdraft facility one bank was kind enough to give me. When interest was 5%, I used the overdraft for all kinds of investment including buying 40000 pound sterling. And shares. They made about 17.5%
Free money.
With the offset acct, even better! When interest rates rose to >8%, I cash up [usually by selling something] & have 100000 or so sitting in the offset.
When interest rates drop to 5%, I borrow aggressively again.
I LOVE IO/variable/ offset loans!! They give me the flexibility to ring the changes.
But I do also have P&I loans where the banks automatically made them P&I. They're merrily paying themselves down & in 8 years, I get money back.
It's the risk management part that's impt.
KY
The danger with IO loans is that if interest rates increase sharply, there might be some stress with repayments. P&I loans are usually fixed even if variable, the P portion has brought the LVR down, thereby insulating against the pressure of high rates.
In the days before the offset acct, I found joy in the overdraft facility one bank was kind enough to give me. When interest was 5%, I used the overdraft for all kinds of investment including buying 40000 pound sterling. And shares. They made about 17.5%
Free money.
With the offset acct, even better! When interest rates rose to >8%, I cash up [usually by selling something] & have 100000 or so sitting in the offset.
When interest rates drop to 5%, I borrow aggressively again.
I LOVE IO/variable/ offset loans!! They give me the flexibility to ring the changes.
But I do also have P&I loans where the banks automatically made them P&I. They're merrily paying themselves down & in 8 years, I get money back.
It's the risk management part that's impt.
KY
I don't think so; you can be disciplined in saving up for a holiday, and also putting aside some for longer term.
