With an interest only loan, you will only be required to pay off the interest on your loan for a certain period of time, usually one to five years. After this interest only period, you will be required to make payments on the interest and the principal amount.

An Interest Only Home Loan is applied in conjunction with another type of loan, for example a Fixed Rate or Variable Home loan.

Advantages

  • Your repayments will be less for the interest only period of time
  • If the loan is not a fixed interest rate, you will still be able to make additional payments and redraw on any savings you have made.

Disadvantages

  • As you aren’t paying off the principal on the loan, at the end of the interest only period, you will still have the same amount of debt owing as at the commencement of the loan
  • At the end of the interest only period, your repayments will be higher as you are now required to make interest and principal payments.

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