Investment Loan: PI vs IO
Everyone who has delved into investment property would have heard the mantra: "For investment property, do Interest Only loan instead of Principal and Interest loan to maximize your deduction". I did, and I followed that mantra blindly until one day it dawned upon me that I have never checked the math at all. So one night I checked the math, and here are the results: Assumption 1: 100% LVR for easier calculation, the LVR does not affect the final nett income difference between PI and IO and we are only focusing on this difference. Assumption 2: Both PI and IO have the same interest rate, in reality, PI usually have lesser interest rate which would further increase the final nett income Assumption 3: Tax bracket set at the 30% level, this should be translated as: every dolar of income from the investment property falls under the 30% tax bracket Assumption 4: no capital gain for the span of 10 years. Capital gain is ignored since it doesn't affect the final nett income d