AN INTERESTING CHOICE
Unless you’ve been lucky enough to win lotto recently, it’s likely you’ll be building your new home with some help from your local bank manager. Taking out a mortgage or home loan is a big step, and it’s important to shop around to find the best fit.
Home loans come in a variety of shapes and sizes, from fixed-rate loans to reverse mortgages (and everything in between). One option that is growing more popular is the interest-only loan: here, your loan is structured like a traditional mortgage, but for a set period of time you repay only the interest component, rather than the interest and principal loan amount.
Interest-only loans have traditionally been used by investors to juggle the demands of a growing property portfolio. However, more and more homeowners are opting for an interest-only loan period to increase the flexibility of monthly repayments, and free up some extra cash to meet larger financial commitments.
Remember, an interest-only loan should only ever be used as a short-term solution. Never take on a loan if you cannot comfortably pay back both the principal and interest amounts, especially if interest rates rise or your interest-only period ends. While it may be tempting to reduce your mortgage repayments long term, by not paying back any of the principal loan amount you miss out on the chance to build equity in your new home. As a result, if you sell your home sooner than anticipated (without a capital gain) you may struggle to meet your loan obligations.
But if you are building a new investment property or need to ease the strain on your household budget for a few months, speak to your mortgage broker or bank manager about whether an interest-only loan period can work for you. And if you have been lucky enough to win lotto, speak to your G.J. Gardner Homes sales team about upgrading to the house of your dreams…