QUESTION
A lot of your responses to questions suggest using an interest only loan for investment mortgage loans. My question is: how long should this strategy be used? When will an investor ever pay off the loan and actually own the property?
ANSWER
The purpose of an interest only loan is to maintain your tax deductions, and also give you the lowest monthly commitment. If you take a principal and interest loan, the interest reduces as the debt does. This means even though your monthly repayment may not change, the tax deductibility reduces with the interest component. Also, if you have a loan on your own home, an interest only loan for investment enables you to have the maximum funds available to reduce the non deductible debt on your home loan. Hopefully, as time goes by, the value of the asset purchased grows, and the debt becomes less and less in real terms.
