Interest Only the best way for what exactly?

Interest Only the best way for what exactly?

There are times where a little more comfort is required when dealing with your home loan. Reasons such as reduced income, an expanding family and unforeseen expenses can warrant turning to interest only. Not a choice to be made lightly as there are costs.

How much can it cost?

A year on interest only, if it means another year on your home loan term, in some sense means another years worth of interest expense. This can be mitigated if there is future ability to accelerate the repayments slightly. So if there is reprieve required for a year but after that year you are able to pay a little extra to achieve the original home loan term, the cost for having gone interest only would be nominal.

It would be closer to the interest on the principle sum you had not paid down.

Forever and ever?

In some cases keeping interest only going for as long as possible can be a good idea. For investment home loans, where the interest is tax deductible, paying down the debt can mean increasing the tax bill. This is only important if there is something else you could be doing with that cashflow instead. Such as paying down the home loan on the house you live in.

So in a situation where you have a home loan that lowers your tax bill(Investment) and a home loan that doesn’t(owner occupied) it is better to pay down one of these first. Maintaining interest only on the investment is good if you redirect the extra payments you would have made towards the principle of your investment to your home.

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