Interest Only (IO) or Principal and Interest (P&I) to my home loans ?
Interest Only (IO) or Principal and Interest (P&I) to my home loans ?
Should I pay Interest Only (IO) or Principal and Interest (P&I) to my home loans (Principal Place Of Residence / Investment Property)?
Principal and Interest repayments
For a home loan with principal and interest (P&I) repayments, you’ll need to pay the principal of the loan as well as the interest charged on it.
Pros:
-
You’ll typically pay less interest over the life of the loan
-
The interest rate on a P&I loan is usually lower compared to an equivalent home loan on IO rate.
-
You’ll typically pay off your loan quicker, meaning you’ll have unencumbered ownership over the property sooner and saving you thousands dollar over the long term
Cons:
-
Repayments are higher than interest only loans
-
If you are looking for a suitable investment loan, a principal and interest repayment type may not be the most tax-efficient option.
Interest-only repayments
Interest-only (IO) loans only require you to pay the interest portion of the loan for a set period of time
Pros:
-
You’ll have lower mortgage repayments for a limited time, which may be more suited to your current lifestyle.
-
You may be also be entitled to tax benefits for investment loans.
Cons:
-
During the interest-only period, the principal amount will not reduce
-
Interest-only loans typically have higher interest rates
Which is better, principal and interest or interest-only?
Each loan repayment type differs significantly, and there is no one simple answer to this question.
For Principal Place of Residence (PPOR): It’s usually best to pay off your home loan as quickly as possible by making principal and interest (P&I) repayments. You can not claim the tax on interest you paid for your PPOR. For Investment Property (IP): It’s usually best to pay off interest only loan. Though you have to pay little higher interest rate by 0.X% to your investment property but you can claim the tax by X% (your tax bracket) on interest you paid for your IP. Principal repayments made on your mortgage are a non-deductible cost. By paying interest only and not paying principal to your IP, you can maximise your cash flow position and use this cashflow to make extra payment to your PPOR loan that again helps you to reduce mortgage on your PPOR and maximise your equity growth or use as saving for your next investment property purchase.*** Note: this is general guidelines only. Please talk to your financial advisor or accountant before making any financial decision.
If you’re in search of a home loan for your first residence / refinance or an investment property, feel free to reach out. I can assist you in navigating your property purchase using a data-driven investment analysis approach.
If you’re in search of a home loan for your first residence / refinance or an investment property, feel free to reach out. I can assist you in navigating your property purchase using a data-driven investment analysis approach.Avantage
Your Future, Fact-Checked.
We don't rely on guesswork. Our team analyzes deep market data, historical trends, and upcoming infrastructure developments to ensure you buy in high-growth areas, whether it's for your family or your portfolio.
Avantage
Headquarters
Visualize quality intellectual capital without superior collaboration and idea sharing installed base portals.
Our locations
Where to find us?
Get in touch
Avantage Social links
Taking seamless key performance indicators offline to maximise the long tail.
Copyright by BoldThemes. All rights reserved.