Interest Only Home Loan

An Interest Only Home Loan is different from a standard home loan in the manner that it is repaid. With conventional principal and interest home loans, the repayments include the interest and a minimal percentage of the principal. On the other hand, interest only home loans repay only the interest part of the loan for a certain period of time, normally up to five years. When you choose an interest only investment loan, the principal amount will not be reduced but you will lower the monthly repayment amount.

Who Can Apply for Interest Only Home Loan?

Interest only home loans are ideal for investors who need funding to buy investment properties then minimise their repayments. Property investors are using this strategy to deduct the maximum possible interest payments from taxes.

Owner-occupier borrowers can also use this type of home loan to maximise your cash flow while minimising your monthly mortgage repayments. However this is a short-term strategy at best, and principal and interest repayments are recommended for home owners to reduce the mortgage and build equity over time.

Interest Only Loans Pros and Cons

Common benefits of Interest Only Loans include:

• Flexibility to make additional repayments
• Redraw
• Tax advantages for ‘negative gearing’
• Lower monthly repayments

Common disadvantages of interest only loans can include:

• Higher interest rate charged by the lenders
• Credit approval more difficult
• Limited loan to vale (LVR) ratios
• Additional lender fees

How to Buy Investment Property

Here some handy hints to get you started in property investing:

1. Obtain independent financial advice

Before investing in property, you should consider seeking independent financial advice from your accountant and/or financial planner. This will help you minimise your risk and maximise any possible benefit. (Express Mortgage Market cannot advise you on investment strategies)

2. Set clear investment goals and objectives

Why are you investing? Are you seeking tax relief, or strong rental returns? Perhaps long-term capital growth is your priority? A clear objective will help you make a better property investment.

3. Research the property market

The more information you have, the more likely you are to invest wisely. Make sure you feel comfortable investing in the geographic area and property type you’re considering.

4. Negative Gearing

Many property investors benefit from tax savings through negative gearing – where the ‘return’ from rental income is less than the borrowing cost of the investment. The loss may then be used as a tax deduction. Consult your financial adviser to see if negative gearing can work for you.

5. Avoid property scams

There have been some well-publicised cases where inexperienced, first-time investors – particularly those from interstate – have been overcharged by unscrupulous property developers. If an investment opportunity sounds too good to be true, it usually is.