Regardless of the stage of life, you’re navigating right now, Funding Zone is committed to helping all clients secure the best finance product for them.
We have lenders who are offering Investment Loans Interest Only Repayments @ 3.99% but this offer is for a limited time only. Please read the information below and see whether the interest-only loan can help you.
What is an interest-only home loan?
An interest-only home loan is a type of home loan where you only have to make payments of the interest on the loan for a set period of time. You don’t have to repay the principal on the loan (the loan amount) like in a principal and interest (P&I) loan.
Interest-only loans typically have a maximum period of 5 years, after which the loan reverts to the normal principal and interest repayments.
Interest-only home loans are not designed for every type of borrower. Interest-only home loans may not be a good idea for standard home buyers looking to pay less on their monthly repayments because the less you repay of the loan amount (the principal), the more you end up paying in interest on your loan over the years.
Instead, interest-only loans can be useful for property investors who can claim the interest as a tax deduction, first home buyers trying to make their first year of loan payments more affordable after the initial upfront expenses of buying, or buyers who only plan on holding onto the property for a few years before selling it.
Benefits of an interest-only mortgage
Interest-only mortgages or home loans can have some short-term benefits such as lower monthly payments, potential tax benefits and may free up cash to invest elsewhere.
Lower monthly payments
Because you are paying only the interest component on your home loan, your monthly payment will be comparatively lower.
For example, on a $300,000 mortgage over 25 years at a 5% p.a. interest rate, the usual monthly repayment would be approximately $1,754/month. But if you were making interest-only payments, the monthly cost would be approximately $1,250/month. These calculations were made using Canstar’s Mortgage Repayment Calculator.
May help maximise tax deductions
An interest-only home loan generally presents potential tax benefits to investors. If the interest paid on the home loan is a tax deduction the investor can claim, then paying interest-only maximizes that deduction for the investor.
After all, paying off the principal means that interest would be charged on a smaller amount, which reduces the dollar amount of the tax deduction.
An investor might take out an interest-only mortgage on a property and count on the property appreciating (growing in value) to repay the principal at the end of the term.
Frees up cash to invest elsewhere
In the investor example above, paying interest-only (with the interest being tax deductible) would free up extra cash to put towards something that isn’t tax deductible – such as another investment loan, business running expenses, or the cost of studying.
There are plenty of other goals that can improve our wealth over the long term, so there’s plenty of ways to put that extra cash to better use than repaying principal on an investment loan.
For an honest and unbiased opinion or to discuss your requirements with an Industry Expert, please talk to Funding Zone today on 0478 885 400 or email info@fundingzone.com.au
– Pankaj Sharma
Recent Comments