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Alf, the way I see it, it is generally speaking better to have an interest only loan than a Principle & Interest loan for a very good reason.

Firstly, if you so wish there is nothing to stop you to make payments on an Interest Only loan just as if it was a P&I loan.

So from that point of view there is no difference as far as the fact that in both situations the loan will get paid off over a period is concerned.

The big difference is in the flexibility in that an Interest only loan gives you the possibility
to call upon the money you have paid over and above the interest if at some stage one gets into some financial strife.

Having a little bit of breathing space can make all the difference to one.

Many of the people I meet are close to being fully committed so a rescue possibilty being in place would be a big help to them in times of need.

There are at least a couple of drawback about an Interest Only loan.

Some lenders may lend a lower LVR (or not at all) on an Interest Only loan (as well as the fact that the MLI premium will be higher than with a P&I loan).

The second drawback is that one may be fritter away the difference between the two types of loan on frivolous things the result being that the loan is not actually being paid off.

Historically speaking (and over a longish period) one would have been better off to have a Variable Rate type of loan.

Whether to lock in a Fixed Rate loan is a decision only the borrower can decide upon.

Historically a Variable Rate would have been better. Then again, having a Fixed Rate locked in may well make you sleep better.

The choice is, as always, yours.

One thing stands out. The fact that some of the lenders have been dropping their fixed rates gives away their thinking i.e. that they don’t think that the rates will run away from us.

Whether that is really a help is something else as no-one can state with certainty that so and so will happen.

There have been occasions where the rate was increased because of certain perceived needs only to be lowered again shortly thereafter.

Ultimately no-one really knows what the future will bring to us.

So there you are, the ball is back into your court.[cap]

Pisces

One of the best LOCs available is with ANZ at 6.47% for loans over $250,000. Macquarie Bank are 6.50% for over $300,000.

Terryw
Discover Home Loans
North Sydney
[email protected]

Full LODOC/NODOC are available from 6.85%.

Sapphire are pretty cool but remember they are fully securitised loans.

Cheers,

Simon Macks
Mortgage Broker
http://www.mortgagehunter.com.au
0425 228 985

Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.