LOANS: THE ADVANTAGES OF PAYING PRINCIPAL AND INTEREST

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When it comes to paying your mortgage, deciding to go with interest-only repayments over Principal & Interest (P&I) can depend largely on your personal financial position. If your circumstances allow, consider choosing to pay P&I, right from the start of your loan. Here’s why:

You’ll pay off your mortgage earlier. If you pay off your mortgage earlier, you end up paying less interest. For example, a $500,000 loan with an interest rate of 4% p.a. over 30 years will cost $32,408 more in interest if you choose to pay interest only for the first five years.
The banks will see you as a lower risk than someone making interest-only repayments. As a result, you’ll be in a better position to negotiate cheaper interest rates.
You’ll increase your borrowing power. Whereas most lenders now limit interest-only loans up to 80% (sometimes 90%) of the property value, if you choose P&I you can potentially borrow up to 95% or even more if you have a guarantor.

As the value of your property grows, P&I repayments mean you will be maximising the equity in your property.
It’s a lot easier to refinance when you pay P&I versus interest only.

If you’d like advice about the best loan arrangements for your property portfolio, our team is always happy to help. Call us on (02) 9326 2788

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