I was reading today in the paper some money tips by a well known guy (who shall remain unnamed) who runs a financial planning business, who used to run a mortgage brokering business and he had a couple of pointers for folk about the way to organize their money. Bizarrely, given the business is a financial planning business, there had been only tips a mortgage broker could give, and they were terribly general.
They were so general they were at risk of being wrong advice and definitely not what you would expect from a financial planning firm.
One tip was to always pay principle and interest, not interest only for your house loan. This I assumed was extraordinarily unusual tip, I understand where he’s coming from in that if you pay back a touch of principle with the interest you pay on your loan, ultimately you'll pay the loan back.
BUT if you don’t also explain that if your loan is principle and interest and is a basic loan with no redraw or is fixed loan that you can’t typically pay more off, if you run into difficulty at any step over the 30 year loan duration, you cannot cut back your payment to the interest only payment if it is required. However most loans that offer interest only also allow you to set your payment to any amount (if it's not fixed and even some fixed permit this) and then you will have the choice of a smaller payment.
You might also find in the future that once you've paid you house loan down, you may want to run up debt against your home for investing reasons and then you might want to not pay off that loan and prefer to utilize the extra money to accumulate more property and coming from a monetary planning perspective- that is the reason why this info coming from this guy is bizarre! It’s not actually something you apply to home and loan investment.
I assume this is the reason why it's not a smart idea to follow hot cash tips- maybe just use them as a kick off point for your own research!
Virginia Graham manages Central Coast Mortgage Brokerand is a well-known financial expert in Australia, having appeared on channels 7, 9 news and current affairs shows and also on radio, as well as writing the finance book Flirting With Finance.