Ever wondered what Interest Only really means??

In recent times, I have seen enquiries about interest-only home loans increasing among both investors and owner occupiers, so I thought it may be a good time to try and explain it in more detail.

Interest-only loans are structured much like any other mortgage, with the main difference being that borrowers only repay the interest instead of paying back both the interest and principal on the loan amount. Interest-only repayments are normally for a set period of time, usually five or 10 years.

Typically, interest-only loans are a strategy used by investors to help them maximise their property portfolio, however many borrowers are now using this type of loan for their own homes.

As a Loan Market broker I can work with you to determine which type of loan is most suited to your needs and guide you every step of the way. Below are the ins and outs of interest-only loans, for both investors and owner occupiers. And if you have any further questions, please get in touch.

Investors

You can increase and manage your cash flow more effectively by minimising monthly mortgage repayments. You can also claim tax deductions on repayments each month.

GREAT for quickly building wealth through property and keeping expenses down while managing your portfolio.

BEWARE of relying too much on the value of your property increasing, whilst only paying back just interest. Without a capital gain at the time you decide to sell, you may find it hard to meet your obligations on the full principal loan amount.

Owner occupiers

By increasing the flexibility of your monthly repayments you can ease the strain on your finances, particularly if you know you have some heavy expenses.

GREAT used as a short term solution to meet your immediate commitments or at a time when you need maximum cash flow.

BEWARE of your limits. Don’t take on a loan if you have no hope of paying back both principal and interest amounts, especially when interest rates rise or your interest-only term ends. Also be mindful that by not paying back any of the overall mortgage, you aren't building any equity in your home.