Interest Only Mortgages
Interest only mortgages allow borrowers to take out a home loan but only pay the interest on the loan. This results in smaller repayments, leaving funds free for other investments. Home owners can use the extra cashflow however they wish.
For home owners looking to buy a second home, or investers looking to purchase a property, the interest only loan allows you to delay the full costs of purchasing a property. The interest only term is fixed, in most cases from one year to 10 years. Once the fixed term ends you can revert the loan to a principal and interest loan, or pay the debt in full. As you are only paying interest, the principal amount is not being reduced. When the fixed term comes to and end, you will still need to pay the total debt amount.
Lower repayments and the ability to use extra cashflow elsewhere are the main attractions of interest only home loans. They can be a useful bridging tool between buying one home and selling another. Investors ofen look for interest only loans so they can use the extra funds for other aquisitions.
Benefits:
- Lower repayments during the interest only term
- Some loans allow for up to 20% of the principal to be repaid during the fixed term
- Extra cashflow for the fixed period
Considerations:
- As the principal is not being paid off, the debt is not being reduced
- The principal part of the loan needs to be repaid once the fixed term ends
Make sure you get the right loan to suit you. If you would like to talk to a local mortgage broker who understands your requirements, call Your Local Finance on  .
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