Do Interest Only Home Loans Still Make Sense?

Six months ago interest only loans made a lot of sense for property investors. Today, the story is very different.
Justin Bohlmann

18 years ago I was living out of a tent, in a little village named Balibo, on the top of a mountain in East Timor when Matt, a mate of mine, said something that’s stuck with me ever since.

What did he say?

“No one ever went broke making a profit”

Why is that important?

Because for eons, people’s innate aversion to pay the taxman has led to a string of poor financial decisions, which have been slowly bleeding them dry.

One of those poor decisions (not in every case of course) is interest only loans.

10 years ago interest only loans made a lot of sense.

The interest rates on interest-only loans were basically on par with principal and interest loans. It made perfect sense to go down that path to free up cash flow and maximise the tax-deductible portion of outgoings (the interest part of your home loan repayment).

Today, the story is very different.

Price pressures from industry regulators have increased the costs of interest-only loans so much that for most property investors, choosing an interest-only loan could be costing them thousands.

The problem with this is, hardly anyone has changed their tune in terms of the type of loans they recommend to investors.

Why?

Well, they’re either lazy, they haven’t figured it out yet (pretty much the same as lazy) or they don’t have the smarts to articulate the risk vs reward.

So to bust this lazy myth wide open we’ve developed a new calculator.

How can it help you?

This calculator will help you work out which loan type provides you the most benefit.

We calculate the results by taking into consideration:

  • The interest cost of the investment loan compared to the tax savings of negative gearing
  • The amount you’ll be owing compared to your repayments

What do your results mean?

If your result is a positive figure (green coloured), you could be better off choosing a principal and interest loan. If your result is negative, you could be better off choosing an interest-only loan.

Transparency is the cornerstone of everything we do at uno. It’s why we get out of bed everyday.

We couldn’t care less if you choose an interest only loan or a principal and interest loan.

What we care deeply about is that it’s the right loan, for your specific situation, right now.

To find out what works for you, use the calculator right here:

[widget-piio-calculator] And if you want to take it one step further than the calculator, you can live chat with a mortgage adviser here.

Justin Bohlmann
* Three year fixed rate, owner occupier, P&I loan with a maximum LVR of 95% and a loan amount >$150,000. Lender rates and products may change. We cannot suggest you remain in or switch to any loan until we complete our assessment. Fees and charges apply. ^ WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. The comparison rate is calculated on the basis of a loan of $150,000 over a term of 25 years. ± All loan applications are subject to uno assessment and lender approval. uno does not guarantee that it will be able to find a customer a better loan than the one they currently have or to save them money.