Interest only home loans are a type of loan commonly used by investors who do not have the intention to pay down the loan from day one, for many investors this strategy is mainly used one as it helps investors to build their portfolios, although if you are unsure if this option is suitable for you don’t hesitate to talk to your mortgage broker about the most suitable option available to you.
An interest only home loan is a type of home loan where you only have to make payments of the interest on the loan for a set period of time. During this time when making interest only payments, the initial home loan balance stays the same as you do not have to repay the principal on the loan like you do in a Principal and Interest loan. Interest only loans typically have a maximum period of 5 years, after which the loan reverts to principal and interest repayments based on the remaining amount over a 25 year loan term not a 30 year term. This means once this time comes the monthly repayment amount will be higher unless you are in a position to carry out a refinance to a more cost effective product. You can in some cases apply for another interest only period after the initial period has come to an end however it will be best to talk to your mortgage broker to find out if this option is suitable for you.
Interest-only home loans are not seen as a great option for owner occupied home loan scenarios. In cases where interest only repayments are applied to owner occupied scenarios are mainly when the individuals choose to minimise their monthly repayments for a variety of reasons, although a negative that comes with owner-occupiers using an interest only home loan is that the repayments can rise substantially when the loan reverts to principal and interest repayments and not to mention you won’t be making any gain on paying down your debt. Owner-occupiers should think very carefully before choosing these products, if you can’t afford to make principal and interest repayments on your home loan, it’s likely that you’ve borrowed more than your budget will allow. Investors should considering speaking with a tax adviser who can determine whether an interest only loan is right for them.
If you have a question regarding anything at all spoken about in this article or anything related to Interest Only home loans then click here to talk to your finance broker Gerry and he will be able to assist with answering any questions you may have.