Interest-only home loans make no sense after bank rate hikes: Macquarie

Interest-only loans now make no financial sense: Macquarie

"Using a 0.5 percentage point differential, Macquarie found that a bank customer in the top tax bracket with a $500,000 loan would be $6,000 better off after five years, and $12,000 better off after 10 years switching to P&I."

 

I'm trying to work out what the article is trying to say - bottomline are they recommending staying on interest only or P&I?

 

The general notes that Macquarie have come out saying is that it makes financial sense to switch to P&I. The inferred exception is if you cannot otherwise afford this cash flow hit - and by afford I don't mean not be able to afford the second holiday that year - but actually not be able to meet commitments when due.

 

My broker told me stories of banks giving rate discounts for P&I (maybe Fixed?), to a point where the P&I repayment are only a few coffees more expensive than going IO.

 

It makes sense to change to P/I based on rate alone but it doesn't make sense to do it if you plan to make future purchases that do not have tax deductible debt (PPOR upgrade).
If you plan to make a PPOR upgrade, it makes more sense to keep loans as I/O and fill up an offset with cash that can be used rather than take out a largrler non tax deductible loan. Same net effect but with better tax benefits.