eChoice Home Loans

Tread carefully with this investor-oriented option. Interest-only suits some investors. For the ordinary home-buyer, its risks may outweigh its benefits.

With an interest-only loan, you repay only the interest on the principal during the term of the loan. At the end of that time - usually one to five years - you must repay the principal as a lump sum. As you would expect, repayments are lower than with a standard principal and interest loan.

These loans are popular among investors who plan to sell the property in the short-term for profit. They are not recommended for ordinary home-buyers or investors who plan to hang on to their investment property for long-term income and growth.

Advantages

• Lower repayments so you have more money to renovate/improve the property.
• Cuts the cost of buying a residential investment property in the short-term.

Disadvantages

• Can be risky: If the property market falls, you could be stuck with the property or forced to sell at a loss.
• If you choose to keep the property, you must repay the principal in full at the end of the loan term.

Tip: Don't be fooled into paying more for an interest-only loan or a residential investment loan. Most lenders now offer the same rates for home buyers and investors.