Hi, I'm sure this topic has been discussed here before, I'm after people's opinions and strategies on interest only versus principal and interest regarding IP's? Thanks, Higgo
Depends on - rate difference - serviceability - spending habits - whether you have non-deductible debt etc
I have switched to Pi due to rate diff The debt reduction component is financed through a related trust for future restructuring and for asset protection.
Hi Terry, Rate difference is becoming a more important Serviceability good, both IP's cash flow positive. Not sure what you mean by spending habits? Yes we do have non deductible debt.
String with at least one lender the PI to IO spread on fixeds is 10 pts........... makes for a compelling argument where one has NON ded debt. I think the important thing is that there is no one size fits all here...... what i right for person x isnt for person y even though they may have identical financials ! ta rolf
It's an individual decision, there's no answer that will suit everyone. The rate difference is probably the first consideration. If the difference is large, the repayment amounts may be quite similar, in which case P&I is fairly obviously the way to go. Your financial circumstances count. If you have no non-deductible debt, then again I'd probably recommend P&I as the main reason to choose I/O is to divert the cash-flow to paying off non-deductible debt. Medium and long term expectations for the property or debt, or the individual's circumstances? Interest only often provides a short term cost saving which may be beneficial, but it costs you in the long term. How does this factor in with your plans? The decision will impact your serviceability. Depending on your circumstances and where you are in your investing, one or the other may affect your servicing. This is actually extremely difficult to predict and could change depending on any number of factors (just as often individual decisions than bank policy). You really need great advice to accurately predict this. One argument that I don't think is valid for I/O repayments is that you can't afford P&I. Sooner or later an I/O period will end and become P&I be default. If you can't afford P&I over 30 years, you should be really worried about affording the payments over 25 years when the I/O period expires.
Unsuitable loan right there unless someone is going to get more income - ie coming off mat leave etc ta rolf
