Interest-only loan or a principal & interest (P&I) loan with an all-in-one account?

By Nila Sweeney | 03 Apr 2007

Q: I'm considering buying my first investment property but I've only just started working full-time. I have around $200,000 to spend. This will buy me a small apartment somewhere in the inner city. My question is: would you recommend an interest-only loan or a principal & interest (P&I) loan with an all-in-one account?

A: The answer to your question really depends on what you're trying to achieve. If you're looking to maximise the tax benefits of property investment, you may want to consider taking an interest-only loan, as only the interest portion of your payment is tax deductible. If, however, your long-term goal is to pay down the mortgage in order to 'gear-up' and use the equity to purchase another property, you may want to consider a P&I loan with either a 100% offset account or an all-in-one account. Both of these facilities allow you to have your salary and savings offset the debt, resulting in less interest you have to pay, and thereby will assist in reducing the debt more quickly.

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