We are now in a lending market where bank policies and pricing are changing on a daily basis. It may not be on your to-do list, but it is a vital time to ensure that your property finances still meet your changing needs and circumstances.
The most common question that we get asked from our clients, is if they should switch from Interest Only to P&I. Below is an outline of the key differences between the two repayment types:
- Higher interest rates
- Repayments don’t reduce loan balance
- Repayments are less if you have funds in offset
- ‘Redraw’ rarely comes into play unless you actively pay into it
- Lower interest rates
- Repayments progressively reduce loan balance
- Repayments are the same despite funds in offset, but you pay less interest, which means you pay the principal off faster
- ‘Redraw’ comes into play when you allocate more than the required amount towards principal
Essentially, P&I loans require higher repayments to be made but can be effective in terms of paying less interest and reducing the loan debt. There is no one size fits all option when it comes to home loans as everyone’s circumstances are different. If you think it’s time to take another look at your loan structure or want some guidance reviewing your loan, contact your broker on 6260 7880 to arrange a time for a mortgage health check.