Hi,
I’ve read many books with many different opinions on why principle & Interest (P.I) loans are much better than interest (I) only and visa-versa. I’m new to this and want to buy an investment property that will hopefully appreciate in value over a few years, whether it be just through increased property values, extensions or whatever, and that is also hopefully positively geared … so with that in mind, is better to have a PI or an I only loan ? Is it better to put as much as I can into the PI loan and therefore increase my equity due to the repayments and thereby reduce my monthly interest or should I just get an I only loan and use the money that I would otherwise put back into the PI loan to save up for another deposit ?
This may sound a bit confusing but I probably am confused so any help would be greatly appreciated, thanksHey David…..What do you feel comfortable with ??
Enjoy
ADEnjoy
AD [:0)]“Don’t dwell on reality; it will only keep you from greatness.”
-Rev. Randall R. McBride, Jr.Hi David,
I have to agree with AD, you need to be able to sleep at night and be comfortable with what you are doing.
For us, we went down the interest only route. If we elect to pre-pay the interest, we get a cheaper interest rate and the added tax benefit for the current financial year. We also chose properties that would have excellent capital growth, so we were comfortable that the equity would grow without us needing to top it up with principle repayments. The other factor is cash flow, the repayments are less for IO rather than P&I.
Good luck
Thanks for the advise. Does pre-paying the ineterest mean that I would pay a lump sum just before the end of the financial year to get the tax benefits (negative gearing…if any) for that particualr financial year ? Sorry if this sounds very obvious but I’m only starting….
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