When Interest Only Loans Are Appropriate

Mortgage Saving Tips

Interest only mortgage loans where you only ever pay off the interest every month and none of the principal are generally only useful when the loan is tax deductible, like an investment property. You may ask, why would you want to not pay off any of the principal? Firstly, interest only repayments are more likely to be completely covered by the rental payments from the property or at the least it reduces the amount that you have to pay out of your own pocket every month. Secondly, the interest only repayment for an investment property is fully tax deductible, whilst the principal part of any interest repayment is not. Thirdly, although the size of the loan does not ever go down over time it will seem relatively smaller because the value of the property will go up year after year. And lastly, the money saved by not making principal repayments can be more effectively directed into your personal savings for investing in something else. A good mortgage brokers should be able to give you a detailed illustration on how an interest only mortgage can work for your own personal situation.

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  • 1.
    DaveF says:Reply to Comment »
    Tue 10th July 2012, 10:43:35

    I have used an interest only loan on my investment property for over 10 years and it has allowed my to use the extra money saved by not have to pay down the principle to invest on other assets, whilst still maintaining a high degree of deductions for my tax return.