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Do you pay interest only or interest and principle off your property loan?

Saturday, 16th Oct 2010
Categories: Finance, Newsletter

 

 Keys for houseSome loans are structured where the loan repayments are interest only, while others are structured where the loan repayments include principal and interest.  For home owners paying non tax-deductible interest, principal and interest repayments are usually suitable so you can pay down the non-deductible mortgage as soon as possible. 

For investors, principal and interest loans are not nearly as suitable. As the principal repayments are not tax deductible, they can harm your cash flow and may inhibit your ability to purchase additional investments.

While, interest only loans are typically more suitable for investors, be aware that with the loan period offered is typically a lot less than a principal plus interest loan.  While 25 year principal plus interest loans are common, with most interest only the loans the term may be only 5-10 years. Despite this, we generally find most investors prefer to use interest only loans. All payments of interest are tax deductible and, providing you are disciplined, you can use the principal repayments you would have otherwise made for other investments.