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Interest Only

You repay only the interest on the amount borrowed usually for the first one to five years of the loan, although some lenders offer longer terms. Because you’re not also paying off the principal, your monthly repayments are lower. At the end of the interest-only period, you begin to pay off both interest and principal. These loans are especially popular with investors who plan to pay off the principal when the property is sold, having achieved capital growth.

Repayment Options

Extra Repayments

If you pay more than the required regular repayment, the extra amount is deducted from the principal.  This not only reduces the amount you owe but lowers the amount of interest you repay. Making extra repayments regularly, even small ones, is the best way to pay off your home loan quicker and save on interest charges. 

Interest in Advance

This is a little known type of repayment however works well for seasonal requirements or tax planning.


Other Features

Direct Debit

Your lender automatically draws repayments from a chosen bank account. Apart from ensuring there is enough cash in the account, you don’t have to worry about making repayments.


Portable loans

If you sell your current property and buy somewhere else you can take your home loan with you.  This can save time and set-up fees, but you may incur other charges.

Professional package

Home loans over a certain value are offered at a discounted rate, combined with discounted fees on other banking services.  These can be attractively priced, but if you don’t use the banking services you may be better off with a basic variable loan.


What you need to know

Benefits

  • Lower regular repayments during the interest only period.
  • If it is not a fixed rate loan, you have the flexibility to pay off, and often redraw, the principal at your convenience.

You should be aware of

  • At the end of the interest only period you have the same level of debt as when you started.
  • If you’re not able to extend your interest-only period, you could face the possibility of increased repayments.
  • You could face a sudden increase in regular repayments at the end of the interest-only period.