Interest only loans

Interest only loans are where the borrower is only required to pay the interest on the loan rather than principal. These loans tend to be popular mainly with investors who wish to make minimum repayments whilst the property hopefully grows in value or for negative gearing purposes.

Repayment savings do lessen the financial pressure in the short term however there are risks in taking a loan that does not pay off any principal.

One major disadvantage is that even though you are making repayments every month you are not reducing your mortgage. So if the property does not increase in value, it means you are not accumulating equity.

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)
Financial flexibility (lesser loan repayments when you need them)
Lower monthly repayments
May assist maximising tax deductions (seek advice from your accountant)

Disadvantages

Very few Lenders offer interest only to owner occupiers
During the interest only period equity is not increasing 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

This is general information only and is subject to change at any time. Your complete financial situation will need to be assessed before acceptance of any proposal or product.

Get in touch to start a conversation.

Our mortgage broker will discuss your objectives to help you to ensure that this type of loan is the right product for you.

GET IN TOUCH GET IN TOUCH

More FAQs

What is an offset account?
31 May '23

When considering a mortgage, it's advisable to research different lenders and their product offerings to determine if they provide offset accounts as an option. Read More…

What are the costs of Refinancing?
31 May '23

Several costs come with refinancing a home loan, although some of these costs are added to your new mortgage. You can get a rough estimate of the cost to refinance your mortgage by using a refinance calculator, or engaging a mortgage broker. Read More…

Settlement Day
31 May '23

On settlement day, it's important to consider tasks such as reviewing the final settlement statement, ensuring funds are available for the down payment and closing costs, and conducting a final inspection of the property before completing the purchase. Read More…