{"id":12414,"date":"2017-07-03T03:00:11","date_gmt":"2017-07-02T17:00:11","guid":{"rendered":"http:\/\/realestatetalk.com.au\/?p=12414"},"modified":"2017-07-03T03:00:11","modified_gmt":"2017-07-02T17:00:11","slug":"interest-only-the-good-bad-and-ugly-andrew-mirams","status":"publish","type":"post","link":"https:\/\/channels.realty.com.au\/realtytalk\/interest-only-the-good-bad-and-ugly-andrew-mirams\/","title":{"rendered":"Interest Only – The good, bad and ugly \u2013 Andrew Mirams"},"content":{"rendered":"

Borrowers are constantly asking the questions about interest-only loans.\u00a0 Maybe they should be splitting their loans up and paying principal and interest as well as interest only.\u00a0\u00a0 We focus on the good, the bad, and the ugly with interest-only borrowing as we talk to Andrew Mirams.<\/strong>
\nTranscript:\u00a0<\/strong>
\nKevin:<\/b>\u00a0 Borrowers are constantly asking the questions about \u201cIs it a time to be doing interest-only? Maybe I should be splitting my loan up and paying principal and interest.\u201d Let\u2019s get a good look here, a bit of a focus on what the good, the bad, and the ugly, is with interest-only borrowing. Joining me to discuss that, Andrew Mirams<\/strong> from Intuitive Finance.
\nAndrew, thanks for your time.
\nAndrew:<\/b>\u00a0 My pleasure, Kevin. Thank you.
\nKevin:<\/b>\u00a0 What\u2019s the good, the bad, and the ugly? Let\u2019s start with the good. What are the good points about interest-only borrowing?
\nAndrew:<\/b>\u00a0 Absolutely. I think with interest-only, obviously one of the benefits is it reduces your cash flow outgoings. When you have your rents coming in and your outgoings going out, not having to pay the principal component reduces your outgoings and that makes it more affordable and easier to hold your properties, especially if you\u2019re growing your portfolio.
\nAnother great point with interest-only is it allows you to prioritize your debt reduction or your debt allocation. You want to be paying off non-deductible debt, especially if you have any personal debt or a home loan, which isn\u2019t deductible. You would be wanting to make your principal or capital reductions to those loans versus allowing the tax-effective debt for your investment sitting there and not having to repay it.
\nAnother thing is you can have an offset account still against the interest-only loan, and that can sit there and obviously then further reduce your outgoings the more you have in your offset account.
\nAnd finally, the best thing probably about interest-only lending when you\u2019re doing it for buying investment is the tax effectiveness of it.
\nKevin:<\/b>\u00a0 Some great points there that you make on the upside. What about the downside? There have got to be some bad points to it as well, Andrew.
\nAndrew:<\/b>\u00a0 This is where careful consideration of every person\u2019s situation has to be taken into account. Some of the bad things that we\u2019ve seen over the journey is that people get complacent with the lower cash flow requirements and the outgoings and they can then lack the discipline to monitor their spending and put that extra aside in your offset account or something like that.
\nThe knock-on to that is when the interest-only period actually expires, you can then be faced with higher repayments, and if you haven\u2019t got those disciplines and haven\u2019t awoken out of your complacency and you don\u2019t have the upturn in your income to be able to meet that, it can put you at risk.
\nAnother bad thing that people often don\u2019t think about is that by not making any capital right from the outset, it actually makes your loan more expensive over the life of the loan.
\nKevin:<\/b>\u00a0 There are a lot of things to consider. I guess the bottom line here, as always, is make sure that you consult a professional to find out what your personal situation is.
\nGive us the ugly, the real bad bit.
\nAndrew:<\/b>\u00a0 Sadly this happens as well. What if your property hasn\u2019t performed and you haven\u2019t had any capital growth? What if actually then you\u2019ve bought a property\u2026 In recent times, we\u2019ve had the mining towns downturn and things like that. What if by paying no capital off, you\u2019re now sitting on some negative equity? What we mean by that is the property is worth less than your actual loan, and now you\u2019re not paying anything off it. It can really put you at risk, I guess, without careful consideration.
\nThe other thing is what if you\u2019re unable to meet your repayments on the expiry of that fixed rate? That can lead to some forced asset sales and things like that if you haven\u2019t been able to monitor your spending and be accountable through the journey of your interest-only period.
\nKevin:<\/b>\u00a0 We say again, make sure you take professional advice, and you\u2019ll certainly get that if you talk to Andrew Mirams and his team at Intuitive Finance. You can contact them through the website, RealEstateTalk.com.au.
\nThanks for your time, Andrew. Great talking to you, mate.
\nAndrew:<\/b>\u00a0 My pleasure, Kevin. Thank you.<\/p>\n","protected":false},"excerpt":{"rendered":"

Borrowers are constantly asking the questions about interest-only loans.\u00a0 Maybe they should be splitting their loans up and paying principal and interest as well as interest only.\u00a0\u00a0 We focus on the good, the bad, and the ugly with interest-only borrowing as we talk to Andrew…<\/p>\n","protected":false},"author":176692471,"featured_media":12420,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[2,34,10,11,13,36,22,25],"tags":[101],"class_list":["post-12414","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-andrew-mirams","category-finance-topic","category-kevin-turner-sponsored-channels","category-kevin-update","category-latest-story","category-property-investment-topic","category-research-topic","category-sponsored-channels","tag-podcast"],"yoast_head":"\nInterest Only - The good, bad and ugly \u2013 Andrew Mirams - 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