| In
fact, studies by Cannex have shown that around 1 in
every 100 home loans approved to owner-occupiers are
currently interest only loans and this figure is steadily
rising.
Could an interest only loan work
for me?
For many people, interest only loans are an intelligent
option, especially in the short term. For disciplined
investors with a good head for money and a loan on a
house which is not stretching your finances to breaking
point, an interest only loan could be viable for you.
By investing the money saved into something with a higher
return than the interest rate on your home loan, the
savvy investor can make their money work for them.
Alternatively, interest only loans can work for people
who are building their own home or renovating an existing
property. However, if you are planning on using the
money saved through having lower monthly repayments
to feed your family, run your car, pay your bills or
finance any of the other basic essentials of life, an
interest only loan is probably not an option you should
be considering.
Interest only loans are not considered to be a long-term
option. Generally speaking, five to seven years is considered
to be the average time spent in one home before selling
or refinancing and the interest only loan only needs
to cover this period. It is also more useful for larger
loan amounts as the savings will be more substantial
when compared to a relatively small mortgage.
So are interest only loans as
good as they sound?
Just because you're not paying any of the principal
doesn't mean that you don't have to eventually. Remember,
when you get half way through a home loan term and you're
still faced with high interest charges plus the full
value of the original loan to repay, the interest only
loan may not seem quite so attractive.
Interest only loans can also be risky. In times of falling
property prices you could be forced to sell your house
for a loss if the sale price is less than the principal
still owing on the loan. This is known as negative equity.
In the right situation and for the right person interest
only loans can be a very useful option. For a low-cost,
short term property investment the benefits can easily
outweigh the disadvantages. However if an interest only
loan is the only way you can afford to get started in
your new home, it might be worth reconsidering your
options and waiting just a little bit longer.
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We
have access to over 700 loan products from Basic Home
Loans to Professional Packages.
Once
you have chosen which loan to go with, your assigned
and dedicated mortgage broker will then assist you through
the whole loan application to loan approval and settlement
process, plus, your broker will continue to be there
for you in the future when you need further finance,
property and loan related advice or assistance.
Contact
us today for a free consultation.
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