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  • Writer's pictureEnvisage Property

Interest Only vs Principal and interest

OK, so interest only versus principal and interest, which one do I choose, let's nut this out. Six factors that we need to take into account.

Interest Rate. Next Play. Is it an investment property? What is your age? What's your cash flow? And do we have a mortgage on our own property is the key to all of this. So let's quickly nut this out. Interest Rate. Is the interest only rate higher than the principal of the interest rate? If it is, by how much, right and then work out the difference whether it's going to be worthwhile or not.

Next Play. So when do I want to get into my next investment? If it's in the next 12 months/two years and I need to save money for that is paying the principal down going to impact that.

Third one is, is it for my own mortgage, my principal place of residence, or is it an investment property? If it's principal place of residence, a lot of the time we'd say let's pay principal and interest, but if it's for an investment property do we want to just pay the interest because we've got some tax deductions etc. and let it do its thing and go and put our cash elsewhere.

Our Age. Are we 35, 45, 55, 85? Right, we need to understand that, how long are we going to be living for, working for, are we going to pay them down now or wait till later, right, very much depends on your age and your time in your life. Cash flow, do we need the extra dollars in our life now, or if we don't can we make extra payments and pay down on this property if we're not going to purchase any other property?

And then last but not least if we've got our own mortgage, why wouldn't we want to be paying that down quicker as opposed to paying principal and interest on an investment property if that was the case. So tossing up which one we want to go with there right as you can see all these six interrelate with each other and there's not just one that we can make a firm decision on for the overall answer of interest only versus principal and interest.

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