Good morning guys, We are currently with comm bank on an IO loan @3.64%. I just rang the bank this morning for a rate review, while they couldn't do much about our rate, they did told me their current P&I loan rate is 3.14%. If I change back to P&I it will be a saving of about $1300 annually. I am just wondering is it worth change over to P&I now? (we have about two years left on the IO loan). I wonder if there is any other benefits of having an IO loan that I didn't see? Thank you in advance!
The question of P&I vs IO is the question of much better cash flow today, or slightly better cash flow over the long term. Switching to P&I now will save you interest (immediately and ongoing), but the repayments will almost certainly be higher than what you currently pay. There will be a slight benefit in your servicing by switching to P&I now. Most lenders (including the CBA) assess existing loans on the P&I period. The longer your IO period is, the less favourable it will be.
The benefit of IO is ALL about what you do with the saved cashflow. Are you using it to buy more asset? Save deposits? Pay down non-deductible debt? If so, stay IO. You'll be better off long term. You could look at fixing if you wanted a lower IO rate. Or refinancing. I actually made a video recently about whether to go IO or P&I, it's inside Empire Builders facebook group if you'd like to check it out. (Link in signature)
I've covered it off in quite a bit of details for investors in these 2 videos on my channel: Hope it helps you in making a better decision! Cheers, David
I would have thought that if the reason for being IO was to save for another investment quicker, then wouldn’t you just take the product with the cheapest interest rate (assuming we are talking PPOR)? Reoriginate/finance back to 80% (or whatever) when you want to pull the trigger on the other investment (expense etc).