Why dont ppl pay IPs off?

Seems a bit strange if you do PI on you loans and you sell IP on your property you will gain access to you funds that you paid off earlier?. you do realize principal is not deductible? and hence if it was an IP you would be paying more tax as interest is deductible and you basically pay more in outlay in PI vs IO. AS mentioned you could easily manage this by having an offset and put the extra repayments in there. if interest rates rise you pay more in PI as oppose to IO? so doesn't seem logical you would do PI

 

Not entirely true, if you are offsetting your principle, you are paying less interest at the same time, how does it makes you pay more interest with I/O with an offset vs P&I?

 

Lol. If my car breaks down I can pay for it from the cashflow from my double figure IPs, some of which I have already paid down on P&I. Thanks for the lesson though

As I said, each to their own. I said at the beginning that I don't disagree with IO but that it has a place and that newbies need to understand the risks.

 

I agree with you on this one completely. Personally, I think for a newbie the biggest risk is not educating themselves to a decent level before starting to buy ips.

 

I can hardly be bothered to say it, but why assume a doubling in value every 10 years?

 

Spot on.
I use both as they have their place.

 

I agree but like with everything in life has risk, people need to understand what they are and be okay with it. I know that I can go into a casino and put it all on black and I could double my money instantly however I also understand the risk that I have a 50% (or worse) of losing it all.

People who rush decisions are usually caught unaware, what if a kid was able to legally walk into the casino and put it all on black and he won 3x in a row and then lost and wanted to get his money back. This is uneducated about what the risk are and people need to self educate.

I also think schools should teach more than just being job ready.

 

I agree only if you have the full amount of the loan in an offset, which I believe most people don't, and hence being P&I works as a hedging strategy, at the end of the day property is a long term investment which ultimately debt free is the way to financial freedom, if P&I doesn't hurt your cash flow too much, why not?

 

History

Yes there are exceptions that not all houses double every 7-10 years however there are houses that double in 2-5 years too.

 

I can't reconcile the huge additional interest paid over the term with IO compared to P&I. The conservative approach for me.

Though I can see the offset thing against an IO loan could work

 

I respect your choice and if it works for you that is fine, I feel there are more effective strategies to access your money than selling the house or applying to the bank for drawing against the equity.

 

Oh well, hopefully those are the only ones you're buying.

 

what i meant or should have worded was outlay of funds if interest rates rise - would you not be paying more outlay if interest rates rise in PI loan compared to IO loan ?

 

If I had a crystal ball then yes I would be but I am more for slow and steady.

There is no such thing as a quick buck in my book

 

I can think of many other upsides of paying P&I, for example by reducing your debt you free up your total debt and increase your servicing which allow you to buy more, unless your income increase substantially which will be a different story. ultimately you want to have more Land Value under your ownership rather than debt.

 

You could always plan to have IO for the first 5 years only across your portfolio. That way giving you the extra cash to purchase adotional props

 

Yes you do and same as I/O, however, with P&I, because you have made the effort of paying off your principle, you can do a internal refinance within the same bank with the same amount, that way your monthly repayments are calculated based on the lower loan amount, not ideally a good for the banker but that is one way to keep the repayment low and continue to pay off the debt.

 

I'm not against I/O guys as I do have one very small IP loan is on I/O, but what I am trying to suggest is that there is no set of formula that will bring you success, each payment features exist for a reason, and you change your strategy according to market and to your risk appetite. P&I or I/O both woks and I have seen success stories on both.

P.S. Remember making money is important, but being some degree of risk advert is also as important.

 

Yes however why put urself through the extra hassle of an internal refinance when u can put the extra funds in offset?

 

I'm not one to have high debt and very risk adverse too as last 3 iPs were all bought in cash