Interested in Interest

When I started off investing in property my main goal was to pay the debt off as much and as fast as I could. Paying principal + interest helped you reduce your debt and forced you to put the money into the mortgage. I never understood why someone would only pay interest and leave the debt at the same level for so many years.

Three years later, and I understand why. Paying interest only is first of all tax deductible in Australia (principal payments are not tax deductible). The money you save from not paying principal can be saved up and utilised to continue investing in more properties. Secondly, even though your debt level stays the same, the value of your property and rental return should be increasing as each year goes by. Obviously this only works if you are disciplined. My worry is if I don’t utilise the extra money for investments and perceive it as extra spending money.

I’m going to convert both mortgages to interest payments only and see how I go with this. The plan is to put the extra money into an offset account until I accumulate a healthy amount to buy again. I should be saving around an extra $300 a week converting to interest only payments.

Call me crazy.

After a long day at work most people relax in front of the TV or read a book. I, on the other hand sit on the couch with the TV turned off, a blank piece of paper on my lap and pen in hand, jotting down numbers and figures. While my partner sleeps in bed, I sit in the living room silently thinking about suburbs and statistics until I feel exhausted.

At a young age I never really had an interest in property. I was carefree. I wanted to travel. I never wanted to be tied down with a mortgage.

Alas, I have 2 mortgages, with the third mortgage hopefully due by the end of 2014. I miss being young when all I had to really worry about after work was which restaurant to eat at or which cafe to go to. But I know I’ve hit a stage in my life known as the “acquisition/accumulation” phase where I feel the urge to increase my assets to the best of my ability.

I blame my uncles and aunts for this craziness happening in my head. The family arrived in Australia as new migrants in the 80’s with nothing but a few set of clothes. With hard work and accumulation, they have been able to do extremely well in the property market. This makes me think- as a person who had the opportunity to grow up in Australia, educated in the Australian school system and with mum’s financial support until I graduated from University- I should be able to achieve more than my uncles and aunts, right?

Call me crazy, but these posts are the thoughts that keep me up late at night.