Investors may be sabotaging themselves with loans
Certain types of loans and structures may sabotage your investment intentions, particularly if you are chasing them due to low interest rates, according to Smartline’s executive director, Joe Sirianni.
One type of loan many investors consider are line of credit loans. While these loans can have their benefits when used in the appropriate way, many borrowers fail to control their loan enough.
“A line of credit is like a giant credit card, so they should be used only by people who can be disciplined,” Mr Sirianni said.
“To get ahead with a line of credit, you need more money coming in than going out every month. And if you have access to credit, and you don’t have discipline, you’re more likely to spend more than is being paid off the loan and start going backwards financially.”
Paying Interest Only for the life of the loan is also another area where investors may be looking.
“This is particularly the case for those who want to build a portfolio of investment properties as quickly as possible,” Mr Sirianni said.
“However, at some stage it’s prudent to look at paying principal and interest to start paying down the loan and build up equity.”
He explained that the main benefit of paying off the loan proportion by the time you reach retirement is for those looking to benefit from rental income.