At the moment, we have an investment property where we're paying 4.5% interest on an interest only loan.
I'm considering moving to another bank which offer 3.88% fixed for 2 years but it can't be interest only – it has to be principal and interest.
This is obviously a huge difference in rates. It's about $5k difference a year in fact. However, is it a good idea to move to a principal and interest loan for an investment property?
As I understand it, if I have an interest only loan of 500k, then I'll always have a loan of that amount and the interest paid is always tax deductible. However, if it's not interest only, then every year, I'll owe slightly less, so the next year, I'll only owe 480k or something and then only the 480k will be tax deductible.
The question is, is it better to save 5k now and go with an interest and principal loan, or keep the maximum amount I can borrow so I can claim more on tax in the future?