Interest only repayments
This is when you only pay the interest portion of your loan for a set period of time, for example the first five years of your loan. As you’re not making payments on the ‘principal’, this will remain the same, unless you nominate to make additional repayments.
At the end of your interest only period, you’ll need to start paying off the principal at the current interest rate at that time.
While interest only repayments are lower during the interest only period, you’ll end up paying more interest over the life of the loan.
Advantages of interest only loans:
- Lower mortgage repayments for a limited time to suit your lifestyle (a common need for lower repayments can be one person taking time off work to be a primary carer)
- Possible tax benefits for investment loans
Disadvantages of interest only loans:
- Principal amount will not reduce during interest only period
- Higher repayments once the interest only period finishes
- Higher interest rate during interest only period
- More interest payable over the life of the loan