Executive director of Smartline, Joe Sirianni believes owners and investors should take advantage of current low interest rates and move to Principal & Interest loans, rather than Interest Only.
“Right now, with the rates the way they are I think you’d be better off reducing some of your debt by paying off some of the principal,” Sirianni said.
“It’s a matter of affordability, but with available rates at around 3.99%, I’d be saying do it if you can afford it and if you can’t afford it with rates like they are then you probably need to have a look at what you’re doing.”
Sirianni uses a $300,000 30-year loan to illustrate his point, at the average variable interest rate in Australia over the past 15 years of 7% a monthly repayment on an Interest Only loan would be $1750, while at a currently available variable rate of 4.5% a monthly Principal & Interest loan repayment would be $1450.
While Sirianni acknowledges many investors use Interest Only loans as part of their investment strategies, he believes right now it my pay to play it a little safer by building equity through paying off principal amounts.
“If you look at what’s happening in the market at the moment then it might be a sound strategy to start paying off your principal,” he said.
“It is a rising market out there at the moment and places like Sydney are undersupplied so there’s probably room for more growth, but at the same time you have to look at what else is going on.
“APRA want to slow the market and the government are looking at housing affordability and negative gearing, so it might be the right time to be a bit cautious.”
