Should I pay principal and interest or go interest only?

Everyone’s circumstances are different so I am generalising. If you are buying an owner occupier home and there is no tax benefit in deducting your interest payments from running a business from home, I would recommend paying principal and interest. If cash flow is tight and you are wanting to save for furniture then interest only maybe the way to go for a year or so, but be aware that if you are not paying down your principal, your principal and interest repayments will be higher once the interest only period is finished. This is because your P&I repayments are now over 29 years instead of 30 years.

The only other time you may consider going interest only is if you are wanting to use your new owner occupier as an investment property in the following year and you want to save up for the new owner occupier. People do this as stamp duty is higher on an investment property.

If you are an investor looking to build up your property portfolio, then interest only has been the traditional way. This is so you have more cash in the bank (you should always have a buffer) and make sure that you are positively cash flowing. This is up to you.

When finding investment properties, I will still try to make it so that you have positive cash flows, even going in with P&I repayments. In any case, you can refinance to P&I later when you are charging a higher rent for the property to be cash flow positive. With brand new property you may still be negatively geared due to depreciation, which allows you to claim more taxes back to add back to your home loan.