All Topics / General Property / Does Steve recommend interest only loans or P&I
After just finishing Steves book, i was wondering if he favoured interest only or P&I finance?
I guess the 11 second rule will only work with an interest only loan?
Is it worth paying off any capital?Your thoughts please?
ThanksHello Rocket.. This was Steve’s response on that issue when interviewed by Today Tonight… Hope this helps..
Question: Which is better, an interest only loan or a principal and interest loan?
Steve McKnight: My grandfather used to say no-one ever went broke owning too little, and I’ve taken that advice. For me, principal and interest loans are a better idea. They might lower your cash flow return but this is because you are repaying debt, which is never a bad thing. You can always re-borrow it later.
The only time I do interest only loans is on the commercial property I own, and that’s because the bank will only offer me a ten year loan term. If I did a 10 year principal and interest loan, it would be largely negative cash flow because of the requirement to pay back the debt. That’s why I do interest only.
Cheers,
Jay
*************************
You must stay pOsitive
…then the cAsHfl0w will come!
*************************Wow, that’s a deep question for TT ; )
quote:
My grandfather used to say no-one ever went broke owning too little, and I’ve taken that advice.But did he really say that? I personally would rather owe little than own little!
Indeed with P&I you eventually will own much, whereas you won’t with interest only, unless you make other arrangements (eg hope for capital gain and sell a few properties later, as recommended by John Fitzgerald).
Peter
Remember that most IO facilities are only five years with a few being longer. A LOC is IO for the term.
The average person with their 5 year IO term will still pay off the loan but enjoy lower repayments for the first five years – poss when cash is tightest!
It really isn’t a huge difference and is very much a personal choice thing.
Cheers,
Simon Macks
Mortgage Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
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