Looking at buying an investment property in Perth?
Trying to get your foot in the door of the property market, but can’t afford the normal repayments?
Maybe an interest only home loan is the right option for you. These mortgages differ from normal home loans in that you only repay the interest for a set term, whilst the principal stays the same. This means that you have lower repayments upfront, but over the full course of the loan, you would end up paying more. Interest only mortgages can be a beneficial tool in certain situations. You can talk to one of our Perth mortgage brokers for information on how they work and which lenders are offering the best deals.
Interest only home loans are great for investors
Interest only mortgages are mostly used by property investors. The most common strategy that they employ involves taking out a loan for an investment property. This keeps the repayments lower than a principal and interest loan and allows them to claim the interest as a tax deduction. Some investors may also take out this kind of finance in the hope of selling the property at a profit before the loan reverts to principal and interest repayments, but this can be a risky move.
These mortgages are now becoming more common with owner-occupiers so that they can have lower repayments in the short term or purchase a more expensive home. They can be a good option for those trying to break into the Perth property market, because it allows them to make lower repayments at first, but over the full term of the loan, they are more expensive. In general, interest only finance has a five year term before it reverts over to principal and interest.. Once the interest only term ends, the repayments become larger to cover the principal as well as the interest that you are already paying.
What to look out for with interest only home loans
One problem with interest only home loans is that you aren’t building any equity in your property, so if the housing market collapses, you could end up with a mortgage that is much greater than the value of your property. The lack of equity also means that you can’t borrow against it if you need to. These loans also tend to have higher interest rates than even fixed rate finance, similar to reverse mortgages and bridging loans, so they can be a more expensive option unless you are using the right investment strategies.
Tax advantages in Perth for interest only mortgages
The tax deduction advantages of interest only home loans can make them an attractive option for property investors, whilst the low upfront payments can make them advantageous for owner-occupiers. Although these can be good choices for many financial situations, there can also be more risks than typical loans. This is why it’s best to contact your broker for expert advice. We can explain things in terms that you understand, help you find the best deals and even assist you with the complicated paperwork.