All Topics / Finance / Interest only or princpal and interest?

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  • Profile photo of DOUGADCOCKDOUGADCOCK
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    @dougadcock
    Join Date: 2012
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    Is it a good idea to go for interest only loan on an investment property or stick to principal and interest. What are the benefits going interest only? Trying to learn all i can here. 

    Profile photo of HomemadeHomemade
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    @homemade
    Join Date: 2013
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    I prefer Intrest only on IPs because you have the flexibility on cash flow. There’s nothing stopping you from paying the principal amount if you have the cash flow to support it.

    Profile photo of BigCubezBigCubez
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    @bigcubez
    Join Date: 2012
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    If you have a PPOR mortgage or any other personal debt, you would want to have an interest only loan on your investment property so that you can pay down your non tax deductible debt first. Jamie M has written an article on the subject that you might want to read. I spent weeks trying to explain to my girlfriend why an IO loan would be better, only to have her stare at me with a blank look on her face. I emailed her Jamie's article and now she fully understands why you would want to set it up this way.

    Profile photo of TheFinanceShopTheFinanceShop
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    @thefinanceshop
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    It depends on a number of things, i.e. if you are disciplined with the cash that is building up? Long term strategy? PPOR vs IP, etc.

    Its a good strategy but doesn't work for everyone.

    Regards

    Shahin

    TheFinanceShop | Elite Property Finance
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    Profile photo of DOUGADCOCKDOUGADCOCK
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    @dougadcock
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    id love to read this article mate, where can i find it

    Profile photo of Jamie MooreJamie Moore
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    @jamie-m
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    BigCubez wrote:
    If you have a PPOR mortgage or any other personal debt, you would want to have an interest only loan on your investment property so that you can pay down your non tax deductible debt first. Jamie M has written an article on the subject that you might want to read. I spent weeks trying to explain to my girlfriend why an IO loan would be better, only to have her stare at me with a blank look on her face. I emailed her Jamie's article and now she fully understands why you would want to set it up this way.

    Hi bigcubez

    That's awesome feedback. I'm glad the article helped to get the message across – I always write the blog pieces with the assumption that the reader is starting from scratch so I'm really glad to hear it helped with your partner.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
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    Profile photo of Jamie MooreJamie Moore
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    @jamie-m
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    DOUGADCOCK wrote:
    id love to read this article mate, where can i find it

    Hi Doug

    Heres the link.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
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    Profile photo of RPIRPI
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    @rpi
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    One old boy I know, who has 10's of millions of commercial property, probably more.

    His advice was to always pay down one.  Your own house first, then your oldest IP and so on.  This guy has been buying investment property for over 50 years.  The problem is the tight old bugger won't spend any of his money.  He'll be dead in 10 years.

    RPI | Certus Legal Group / PRO Town Planners
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    Profile photo of TerrywTerryw
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    RPI wrote:
    One old boy I know, who has 10's of millions of commercial property, probably more.

    His advice was to always pay down one.  Your own house first, then your oldest IP and so on.  This guy has been buying investment property for over 50 years.  The problem is the tight old bugger won't spend any of his money.  He'll be dead in 10 years.

    I know an old multi millionaire like that. He repairs his own underwear.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    Profile photo of Jamie MooreJamie Moore
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    @jamie-m
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    Terryw wrote:
    RPI wrote:
    One old boy I know, who has 10's of millions of commercial property, probably more.

    His advice was to always pay down one.  Your own house first, then your oldest IP and so on.  This guy has been buying investment property for over 50 years.  The problem is the tight old bugger won't spend any of his money.  He'll be dead in 10 years.

    I know an old multi millionaire like that. He repairs his own underwear.

    lol – well they say frugality is a characterstic of the rich.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
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    Profile photo of TerrywTerryw
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    @terryw
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    Jamie M wrote:
    Terryw wrote:
    RPI wrote:
    One old boy I know, who has 10's of millions of commercial property, probably more.

    His advice was to always pay down one.  Your own house first, then your oldest IP and so on.  This guy has been buying investment property for over 50 years.  The problem is the tight old bugger won't spend any of his money.  He'll be dead in 10 years.

    I know an old multi millionaire like that. He repairs his own underwear.

    lol – well they say frugality is a characterstic of the rich.

    Cheers

    Jamie

    There is frugality and then there is tight assity

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    Profile photo of BigCubezBigCubez
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    @bigcubez
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    Hi Jamie,

    Thanks for the great article. It was definitely helpful for our situation, and I'm sure will be helpful for many others also.

    Regards,

    Cubez

    Profile photo of RPIRPI
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    @rpi
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    Yep, this guy goes to tight assity

    He owns half of Stones Corner, half the industrial area of Coorparoo.  He was also one of the first to develop the farmland around Hemmant into Commercial when the Gateway Bridge was being built and still owns some enormous facilities out there.

    He has been wearing the same clothes for ever.

    He drives an old, old ute.

    Although he did lash out on a second hand rav 4 for his wife probably 10 years ago

    If you ran in to him in the street, you would think he was an OAP who was really down on your luck.  Hell of smart guy, drives his wife and his kids absolutely nuts with his tightness.  He could probably blow $10k a day and still not outlive his wealth, he wouldn't even blow $10 a day.

    RPI | Certus Legal Group / PRO Town Planners
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    Profile photo of firewaterfirewater
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    @firewater
    Join Date: 2011
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    Hi Jamie, could you send me thr link to your article? I'm curious to learn more on the debate.

    Profile photo of firewaterfirewater
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    @firewater
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    Profile photo of firewaterfirewater
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    @firewater
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    Good life lesson, make sure you don't mend your own underwear once you become a property millionaire!

    Lol! This forum is hilarious!!

    Profile photo of C2C2
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    @c2
    Join Date: 2002
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    Depends on your investment plans and what you can get from your IP.  Also fixed or variable?

    This thread reminds of a family member.

    Profile photo of DOUGADCOCKDOUGADCOCK
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    @dougadcock
    Join Date: 2012
    Post Count: 22

    thanks a lot that article made a lot of sense, 

    Profile photo of Alistair PerryAlistair Perry
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    @aperry
    Join Date: 2004
    Post Count: 891

    My view is that people should always pay down debt, the most expensive first. Non investment debt is generally more expensive because it is not tax deductible, so for most IO for investment debt is an absolute must. However i usually suggest IO for any and all debt where possible, this is not because I don't think paying down debt is a good thing, quite the opposite, but all P&I does is set a higher minimum repayment, having an IO loan does not mean you can't pay it down, it makes principal repayments a choice. I have a strong preference for making my own choices and encourage clients to do the same.

    having said this, there are some people who freely admit to lacking discipline with regard to saving, if you are in such a class, certainly P&I can act as a forced saving and would be desirable, but this is not a financial decision it is a behavioral decision.

    Profile photo of minds-eyeminds-eye
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    @minds-eye
    Join Date: 2013
    Post Count: 45

    Hi, newbie question here. I've just learnt about the benefits of Interest only + Offset account just yesterday.

    Is it fair to say that If i had a P+I loan repayment of 850 per week (500interest,350principal) would it be effectively exactly the same as paying 500 on IO and putting 350 into the offset account?

    To me, it seems like a no brainer to use IO because you have a great deal more flexibility + cash liquidity.

    What is the catch here? It is harder to secure an IO loan? Do banks prefer you to have P+I ?

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