As the saying goes, if you're standing still, you're going backwards. Up until 6 months ago, deciding on P&I or IO repayments was easy, as the interest rate was the same for either, and the repayment type didn't impact your borrowing capacity. Today, it's a very different story.
Knowing your financial priorities is now even more important when it comes to borrowing money, in fact it will be your secret weapon. Borrowing money is necessary (for most people) when buying a home or an investment property. The debt you take on, and the order which you do it in, will impact how much you can borrow and when.
Humans are driven by different priorities. When it comes to borrowing money, some people are focused on the interest rate, some are focused on the repayment amount, whilst others care less about either and just want the cash to achieve their bigger picture.
When an asset performs as strongly as property does, particularly in major capital cities like Melbourne and Sydney over the last few years, many people jump on the bandwagon. Some do it for strategic reasons, whilst others do it because every else is.
No doubt you're familiar with the TV reality show The Block, hosted by Channel 9 (in Victoria). The reality show is currently running another series at a site in St Kilda, Melbourne. If you're a fan of The Block, and a fan of property as an investment vehicle, then perhaps it's a timely reminder to ensure the success of the show does not derail you as a property investor and does not cost you in long-term wealth?
A major conversation topic for home loan borrowers right now is... Principal & Interest (P&I) or Interest Only (IO)..? As boring as the topic may sound, it's very important to address it given that ~75% of the Australian population has a home loan or an investment loan.
Interest rates are a hot topic right now. Up until recent times, home loan rates were identical to investment loan rates. Over the last few months, banks have been slowly increasing interest rates to the point where Interest Only (IO) loans are 1% higher than Principal & Interest (P&I) loans. With a 100 basis points price difference, one must consider whether it still makes financial sense to pay IO on your mortgage.
Higher interest rates... Higher property prices... What's next? The truth is, does it really matter? All these things are out of your control. BUT what you can control is your mind, and that is the only thing that will make ALL the difference between your financial position today to your financial position 10 years from now.
When it comes to property and taxes, change is the only certainty. There are a few major changes coming your way that relate to property in Victoria. These changes impact both owner occupiers and property investors and therefore you should take a closer look.
Australia's banking watchdog APRA is worried about the housing market overheating and exploding. To counteract this perceived risk, APRA has changed the rules of play which Authorised Deposit-Taking Institutions (ADIs) must adhere to when assessing loan applications.