Is interest only a good option for my mortgage?

During the life of having a mortgage, just paying interest can be a viable option to keep payments low for a while. There are also advantages for property investors to use interest only in their mortgage set up. Obviously, the downside is that you are not paying off principal, and the longer you don’t pay principal, the shorter period you have left to pay it if seeking to be debt free by retirement. 

Here are some typical examples of when interest only is used:

1. Mortgages attributed to rental properties, so you ‘pause’ paying tax deductible debt principal while you pay down non tax deductible debt quicker.
2. Rental property mortgages where you want to keep payments low, creating a surplus every month after all expenses paid which becomes a ‘passive’ type income. 
3. Further to the above two points, investors keep payments low on the rental loans in the hope that capital gains over the next 5,10,20 plus years will help clear the principal when it comes time to sell and leave plenty of cash leftover to help fund retirement.
4. Bridging finance when you are using the money for a short period of time so need to keep payments low.
5. Revolving credit facilities where you want to keep access to the same limit every month and control the principal payments.
6. Short periods of adversity such as losing your job or ill health to keep payments low for a period (ideally short).
7. Short periods where you may be between jobs or maternity leave.
8. Occasionally if you have significant expensive short-term debt, you may pause principal payments on the mortgage while you pay more towards paying down expensive debt.

Banks are strict on providing interest only terms these days and any request for interest only usually requires a financial assessment. Banks are more lenient however on allowing interest only for specific rental property purchases. That sometimes means a restructure of existing debt to make it more tax effective. With accounting advice, it may be prudent to sell an existing rental property(s) that is owned in personal names, to a Look Through Company (LTC) or standard company to enable transferring as much personal debt as possible into the company for better tax purposes. At that point all the debt under the LTC would be on interest only while you pay down any debt that is in your personal names first. 

The key thing is always seek advice from an independent mortgage professional like ourselves and an accountant/lawyer on rental ownership options.