Why Pay Interest Only?

A very common question we get is should I pay principle and interest or just interest only. The answer depends on a few key elements;

– Are you purchasing a home or investment property?

– What loan structure do you have setup?

– What the banks are willing to offer?

If you are purchasing an investment property then you should setup your loan as interest only. Even if you have excess cash flow and nothing else to commit your money to it is still better to setup your loan as interest only. The reason being is that once you put money into the property, it is very hard to pull it out again. The best structure would be to have a re-draw or an offset facility. This allows you to make additional payments if you have excess cash flow but if you need the money you can still withdraw it.

If you have a home, paying Principle and Interest is not too bad, although I would still have an offset or redraw account setup. The key in this scenario is to structure your loan so you can gradually change your non-deductible debt across to deductible. This will take some time but if not structured correctly you will end up with the wrong debt against the wrong property.

Sometimes you just don’t have a choice. If you are borrowing 95% plus then the bank will most likely insist that you make principle and interest payments.

Every situation is different but you need to ensure you get the maximum amount of flexibility which will allow you to better manage your cash flow, investments and debt.




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