Interest Only Home Loans
If you’ve ever purchased an investment property, chances are you’re familiar with the concept of an interest only home loan. Offering lower repayments and many of the same features as traditional loans, interest only loans are particularly suitable for investors. However interest only loans are also suitable for general home buyers, refinancing an existing loan, as bridging finance or to pay for home renovations.
How it works
A principal and interest loan is still the most common type of home loan. Repayments include interest and principal, allowing home owners to repay the loan in full by the end of the loan term, assuming they make the minimum repayments.
With an interest only home loan, repayments only cover the interest component. The principal is repaid in full at the end of the loan term.
Because borrowers only repay the interest component, interest only loans have lower repayments than principal and interest loans.
Advantages of Interest Only Loans
Disadvantages
If you have any questions please feel free to contact us – Obligation free.
If you’ve ever purchased an investment property, chances are you’re familiar with the concept of an interest only home loan. Offering lower repayments and many of the same features as traditional loans, interest only loans are particularly suitable for investors. However interest only loans are also suitable for general home buyers, refinancing an existing loan, as bridging finance or to pay for home renovations.
How it works
A principal and interest loan is still the most common type of home loan. Repayments include interest and principal, allowing home owners to repay the loan in full by the end of the loan term, assuming they make the minimum repayments.
With an interest only home loan, repayments only cover the interest component. The principal is repaid in full at the end of the loan term.
Because borrowers only repay the interest component, interest only loans have lower repayments than principal and interest loans.
Advantages of Interest Only Loans
- Savings on repayments can be utilised for other expenses or investments.
- Extra repayments can be made to pay off the principal ( fixed loans may be limited, typically between two and five years).
- Financial flexibility (lesser loan repayments when you need them)
- Lower monthly repayments
- May assist maximising tax deductons (seek advice from your accountant)
Disadvantages
- Very few Lenders offer interest only to owner occupiers.
- During the interest only period equity is not increasing equity in the property unless the value increases.
- Once the interest only period is complete the loan will revert to principal and interest over the remaining term meaning repayments will become higher.
- Clients could be tempted to spend more money than they actually have.
If you have any questions please feel free to contact us – Obligation free.
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