Hi folks
This thread relates to mortgages as they pertain to a primary place of residence (where you live), as opposed to an investment property.
My mate got some advice from a mortgage broker, where by he was told in simple terms, that if he takes out an interest only loan for his mortgage, but religiously pays off more than the interest only amount, the principal will drop a lot quicker than a traditional Principal and Interest loan.
The numbers below are just to explain the so called logic in simple terms, not based on specific interest rates etc.
Lets say your mortgage is $300,000
Option 1: P&I fortnightly payments might be $1000/Fortnight
Option 2: Interest only payments might be $700/Fortnight
The theory goes that if he does option 1, he pays $1000 fortnight, but $20 might come off the principal. With option 2, if he pays the same $1000, then $700 is the minimum interest payment, but the extra $300 he pays comes straight off the principal.
Can anybody vouch for this approach working as detailed above?
Cheers
JT