P and I loan

Nope – I don't.

Some people do. There's usually a few main reasons. Firstly, they're unaware that their finances can be structured in a better way. Secondly, there's a mental barrier (sometimes an older school way of thinking) that all debt is bad and must be paid down as soon as possible. Lastly – they might not have any personal debt and are in a position to start paying down investment debt.

Cheers

Jamie 

You can refinance and it is just a new loan so it can be extended to 30 years…A lot of people don''t pay back principal which astounds some as the banks are seen as greedy corporations and the common perception is you don''t want debt sometimes debt can be helpful you can look at it this way say you buy 2 investment properties now P and I and can never afford another IP due to not having a good enough cashflow. If you bought two properties on interest only you would have more money to play with so you could get more investment properties. More properties=cashflow/capitalgrowth/discounts(banks/property managers will give you discounts with larger portfolios. I wouldn''t worry about paying P&I but would consider an offset account.  

Also i can't see why your bank wouldn't refinance think of the extra interest they would get.

So when do you exactly pay the principle back on a "interest only" loan….  After all a debt must be paid back at some point right?

What happens if every Tom, Dick & Harry's house go down in value and selling will cause them to go bankrupt?

Woah, Jamie M – You have me thinking now…

We are about to move into one of our units upon completion. We'll own it outright, so does that mean I should have all my other Investment properties as P&I due to no longer having non-deductible debt?

Hi Jamie M,

Yeah that is exactly what I thought.

Just wasn't 100% sure if I was on the right path after reading previous comments.

Thanks!

Hello Lancehater,

Currently it is how I've structured three IP's with the decision to do so predominantly based on the assumption that reducing mortgages in the traditional manner was the best way forward. Having said that though, in my circumstances it does not allow any flexibility  and the amount of principal that has been paid (plus a little extra) has not made too much of an impact in reducing the mortgages. I am currently looking at refinancing to interest only as I believe it will better suit my circumstances and goals.

Regards,

Will

Spot on – it's about maximum flexibility, future planning and being in total control of your finances. For some people it's difficult to get their head around the concept – and it's understandable, the idea of not paying down debt as quickly as possible can seem quite strange. But providing you're making contributions to your offset account – it's essentially the same thing albeit with a number of big benefits.

Cheers

Jamie

The loan you take out on an investment is fully tax deductible. If you pay it down then the amount is reduced. If you then take money out of it to spend on (say) a car or a new home that amount is NOT deductible as you spent it on personal items.

If you have the same account but with an offset you put any extra money into the offset so in effect you will be paying the same interest as if you were paying it down BUT the money in the offset is yours. You've just lent it to the loan. SO you can pull it out at any time and spend it on whatever you like and the loan then reverts to the full amount which IS ALL tax deductable.

Hope that explains it. The offset gives you flexibility without changing your goals of paying down the property.