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An Interest Only home loan requires borrowers to pay back only the interest charges for a specific period of time instead of both the principal and interest amount. According to statistics from APRA, Interest Only home loans increased approximately by $8 billion in the September 2016 quarter. They now account for almost 40% of residential home loans.
However, why are Interest Only home loans so popular, and what are the associated benefits?
Interest Only loans are attractive for property investors because the principal is not payable for a period of time. This is typically five years, and can be extended depending on the circumstances of your loan. Thus, the repayments would be significantly less, and can suit the budget for property investors if they do plan to sell the property after a market cycle. It gives property investors greater control over their cash flow so they can potentially fund other investments.
The interest repayments are also tax deductible and this tax deduction is proportionate to your loan amount. Therefore, property investors can allocate additional funds towards non-tax deductible debt. If you currently have an Owner Occupied property and you are considering transferring it to an Investment property, then an Interest Only loan can provide you with tax deductions before you transfer.
Interest Only home loans also attract first home buyers who wish to purchase a property sooner without initially feeling overwhelmed with paying both the interest and the principal. It can also suit buyers who would like to have short-term savings and believe they will be capable of paying larger repayments in the future.
Homestar Finance offers one of the lowest Interest Only rates in the market. Contact us on 1300 462 209 for more information.