There is a possibility that you could face a sudden increase in regular repayments at the end of the interest only period.
Interest Only Loan
- You only pay the interest on the loan.
- The principal loan amount (the loan amount originally taken out) remains the same while interest only payments are being made unless you make principle reductions or extra repayments.
- The term of interest only repayments is usually for the first one to five years although some lenders offer longer terms.
- Popular with investors as repayments are calculated on the interest component of the loan only and who may pay off the principal when the property is sold, having achieved potential capital growth.
- Also available for owner occupiers.
- Many lenders give borrowers the option of a further interest-only period.
- Your monthly repayments are usually lower because you’re not paying off the principle.
- You may have the flexibility to pay off, and often redraw the principle at your convenience.