What is an interest only loan?

Answer

An interest only loan is a loan in which, for a set term, you only pay the interest charged on the principal balance, which remains unchanged.

An interest only loan can seem like a great idea at the time. It allows you to minimise your home loan repayments in the short term, while your property asset hopefully grows in value in the long term.

But there are risks involved with taking out a loan and not paying any of the principal. You won’t be gaining equity in your home unless the value of your property increases, even though you are making regular repayments.

 

Important information

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