- Home Loans Why Speak To A Broker
- Home Loan Calculators
- How Much Can I Borrow For My Home Loan?
- Refinance Your Home Loan
- Fixed Rate Home Loans
- Interest Only Home Loans
- Variable Rate Home Loans
- Fixed vs Variable Interest
- Debt Consolidation
- Lenders Mortgage Insurance
- Home Equity Loans
- Interest Rates Information
- Mortgage Brokers
- First Home Buyer Grant
- Stamp Duty
- Investing In Property
- What To Consider Before Buying
- Finance Tips For Renovators
- Pre-Renovation Checklist
- Renovating vs Buying a New Home
- Home Loans Comparison Guide
- Home Loan Application Checklist
- 10 Mortgage Repayment Tips
- About Home Loans
- Home Loan Lenders
- Best Home Loan Rates
- No Deposit Home Loans
- NAB Home Loans
- Westpac Home Loans
Interest Only Home Loans
Interest only home loans may offer short-term savings that free up cash to cover other expenses or investments, but shouldn’t be viewed as a long-term solution.
If you’re considering an interest only home loan but want to know more about it, here’s a quick rundown of how they work, who they work for, and the pros and cons.
What are interest only home loans?
With an interest only home loan, you pay back only the interest charges on your loan for a set period of time, rather than paying back both the interest and principal.
The interest only period differs between lenders, but five years is typically the maximum term.
Interest only home loans initially provide short-term savings through lower monthly repayments. However, as you’re charged interest on the principal of your home loan, and you’re not reducing the principal during the interest only period, bear in mind that you’d be paying back more money over the life of the loan.
Who do interest only home loans suit?
Interest only home loans have traditionally been popular among property investors who intend to sell up after a market cycle – typically seven to 10 years. They then pay off the balance of the loan and pocket any capital gains the house has made as profit.
As another example, if you’re building or doing major renovations and need somewhere else to live in the meantime, an interest only loan may make it easier for you to cover both your rent and your mortgage repayments. Just remember, interest only loans are not a long-term solution.
What are the pros and cons?
As mentioned, short-term savings are the most obvious benefit of interest only home loans. Also, if you do come into some extra cash, many lenders will allow you to make additional contributions during the interest only period.
However, in the cons column is the fact that the interest rates on this type of loan may rise if the Reserve Bank of Australia (RBA) increases the official cash rate, or your lender chooses to increase their interest rate independently of the RBA.
For advice on whether an interest only loan might work for you, call 13 19 20 to speak with one of our qualified mortgage brokers. Or, find out the total interest payable on your loan with iSelect’s Home Loan Calculator.
iSelect powered by AFG does not compare all home loan lenders or products in the market. Some products may only be available from iSelect powered by AFG’s call centre. The availability of products may change from time to time. Not all products available from iSelect powered by AFG’s providers are compared due to commercial arrangements, your stated needs and circumstances. Not all products compared by iSelect powered by AFG will be available to all customers. Click here to iSelect powered by AFG’s range of lenders. Home loans products arranged by iSelect Mortgages Pty Ltd (ACN 148 217 181) powered by AFG, is an authorised credit representative of Australian Finance Group Limited (Australian Credit Licence Number 389087). Any advice provided in this email/article is of a general nature and does not take into account your objectives, financial situation or needs. You need to consider the appropriateness of any information or general advice iSelect gives you, having regard to your personal situation, before acting on iSelect powered by AFG’s advice or purchasing any product. iSelect receives commission for each product sold.