Biggest Mortgage Hack! Interest Only vs Interest + Principal | $1,000,000 Equity
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- Опубліковано 25 сер 2024
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passive income from property
Australian property investing
Australian property market update
interest rate changes
cashflow positive properties Australia
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This strategy is not for everyone due to the following reasons :
You will still be paying interest on the loan, which can add up over time.
If property values go down, you could end up owing more money on your loan than your properties are worth.
You may not be able to refinance your loan after the interest-only period ends.
However, if done right, it is the most leveraging option one can have. 😊
I personally do it in hybrid mode. Part fixed rate interest only, and part variable. Paying down the variable part little by little and refinance every year to shrink down the interest rate only part.
This is what I used 20 odd years ago. Back then interest only loans had a 15 year term then reverting to a P&I loan. The idea was to buy 2 properties that would go up in value more than the cost of holding them. After 15 -20 years sell one to pay of the other and you saved 10-15 years in owning the property.
Down side is if you don't sell one to pay off the other payments are high due to now only having a 15 year P&I loan to pay the balance. But now I know how inflation helps those with assets the remaining debt is not much in todays money.
Just a little critique. The comparison wasnt done completely. What were the total interest repayments at the end of 30 years + the initial loan amount. Then compare the p & i vs interest only.
But the difference between Principle and interest only is like $5 a week on a 500.000 loan .
Yeh, like others here, i can't find a lender where the P&I rates versus the interest only rates are such that you pay less on interest only. i can only find ones where you pay more on interest only for the exact same loan. Can you please explain Ravi. what am i/we missing?
You don't make principal payments only interest. Therefore your payments are less.
@@thedon9670 yeh. You didn't read what I wrote. In any event. I've found some that do.
What if the market will not facilitate capital growth and flat lines
Doesn't add up at all, interest only loans have higher rates. Also being "filthy rich" in 30 years from now is actually a shit life, my money is worth way more to me when I am younger than having a 1% level of filthy richness when i am old
The difference is marginal between interest only and p+i. Principal payments are way more than that marginal increase in interest for interest only.
As for your second point, you shouldn't invest then.
But your increasing your income with positive cash flow ?
In the short term
Interest only and negative gearing means repayments on the investment property can be turbocharged...
I'm not sure that Ravi is aware of all the figures which need to be included in such an analysis. In Victoria there are taxes each year on investment properties. Capital gains tax needs to be paid on the sale of the investment property.
Interesting only is only for 5 years
Lenders will assume P+I when calculating your serviceability so paying interest only isn't going to increase your buying power, unfortunately.
Im 30 now and in 30 years i’ll be 60. I’ll have millions in my bank account but will be dying soon.
Is it worth it? Did you enjoy your life?
I know lots of people with $1M loans paying $65k of interest a year with current 6.5% interest. (There are almost dying as well and they will endure that for 30 years.)
Money and having lots of properties will not give you happiness if you trade your life for them. I work with dying people so I know where all of us will end up.
My suggestion is, live within your means. Buy a small house that is just enough for what you need. Pay off your debts early and enjoy your life. ❤
I love your message it’s true and that how we should do. Also invest in some index fund or maximum your super contribution for good retirement
This just needed more than a thumbs up. Thanks for the humble message mate
I reckon you can do both a the same time. No issues hustling for your kids future a bit
I agree, I’ve been toying with all this stuff thinking is it worth it. Leveraged up with a view to being wealthy but being in the $hit of it goes wrong. Surely there’s a happy middle ground of just having enough and being satisfied :)
Awesome explanation 👏👏 Where can I get the calculator that you are mentioning here ?
Yes, just remember to note to new investors $1,000,000 in 15 years is more like having $633,000 today.
Yeah but if capital appreciation is greater than inflation, you're still coming out ahead.
If your property doesn't increase in value during the interest-only period, you won't build up any equity. This can put you at risk if there's a market downturn, or your circumstances change and you want to sell.
Watch out guys
I appreciate the effort in the video but bro you went from talking about more cash flow on I only on a 600k property to suddenly talking about buying and selling 2x 700k property. 🤣😅
Don't like scams
What about how interest only reduces your borrowing capacity
Does it? Can you please tell me how
11:20 add your tax bill to that amount and you’ll need to hold for a few more years
exactly.. 22.5% CG tax considering 50% discount since held for more than a year. Regardless, idea to find investment property with value growth plus rental returns compensating for the interests paid
Can you share the links to your calculators, please?
i was thinking that as well calcs look good
Sound advice. Glad you sacked your previous previous video editor, way easier to watch!
I don't agree to this, doesn't make sense, IO reduces your borrowing, so you still can't buy more IP
You are the 99% that's why.
Awesome video Ravi, totally agree. Only thing is interest free loans are typically at a higher rate compared to P&I, something to consider when you compare the two options.
So does that mean, the video is complete BS as it is not freeing up the cash in hand to buy another property?
Perhaps a query, are we really facing an Aussie housing market where in 30years a property will cost $6-8million? 😮😢
Perhaps the return figure was too high, you did say 3 - 6% towards the end. I think the $8million figure lost me but I really value the mindset of being debt accumulation phase to acquire assets vs debt reduction. It is helpful to framework.
30 years ago properties were $60,000 now they're $600,000. In 30 years they will be $6m. It's the way the world works.
Is the interest tax deductible?
Of course
I believe if you're not living there and you're renting them out then yes the interest rates can be deductible. I would check with a financial advisor though.
What percentage of the interest do you get back?
@@cindymajdak6622 You can claim all the interest paid with an investment property.