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Like all specified home loans, fixed rate interest-only home loans are tailored to answer a particular need. They can be useful to investors who plan to sell at the end of a short term, those who are building their home while renting their place of residence, or anyone who would benefit from a short period of a more disposable income while managing repayments.
After entering your details a mortgage broker from Aussie will call you. They will discuss your situation and help you find a suitable loan.
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Interest-only home loans are home loan agreements that require you to pay only the ainterest on the amount you have borrowed, rather than paying off the principal amount in instalments each time you make a repayment. That means that if you have borrowed $300,000, your monthly repayments will be lower than on a regular home loan contract where you typically pay off the principal amount as well as the interest, but at the end of one year the full amount of $300,000 would still be owing.
A fixed interest rate loan allows you to budget precisely each month, as the amount you are required to pay back never changes. This can make monthly repayments easier to manage, especially if your interest-only repayments are being made on a property you are not yet living in.
Fixed rate interest-only home loans are short-term home loan contracts that only require you to pay off the interest on the amount borrowed and pay at a fixed rate.
The important thing to know about interest-only home loans is that they are only available for short periods of time when your usual income is being diverted elsewhere temporarily. They are not recommended as a tool to help you pay for your everyday living expenses. This is because with an interest-only home loan you’ll never own your own home, as your repayments will only go towards the interest portion, and not the actual loan amount you owe.
Interest-only home loans are traditionally tailored for and suited to investors who plan to sell after only a short period of time and whose personal financial situation doesn’t necessarily benefit from paying off the principal borrowed amount. However, interest-only home loans are becoming more popular with people who might benefit from a short period of substantially lower repayments, including:
Make use of home loan comparison tools and calculators to see how the banks and lenders measure up to each other.
While it might seem like a great idea at the time, interest-only home loans should be taken out with caution and there are some pretty significant disadvantages to be aware of before you sign up.
The most glaring downside is that you are not actually paying off your home. This means that you are not building equity, and at the end of the loan period you are essentially where you started.
Another problematic feature with fixed rate interest-only home loans is that once your interest-only period is over, the amount you will need to pay in monthly instalments will actually increase. This is because the principal amount will not have changed and nor will the loan term, meaning that the same amount will have to be paid back in fewer instalments.
If you are using an interest-only home loan to bet on an investment, a lot rests on your ability to pick the market. While we do have a relatively stable property market here in Australia, real estate can be full of surprises. If you get it wrong you are looking at higher monthly repayments, paying more money in interest over the life of the loan or even losing money.
If you think you are eligible and would like to apply, you will need to provide documents to prove your case to your bank or lender.
When you are considering entering the property market for the first time or as an investor, it pays to ask lots of questions and shop around to find the home loan that suits you, your lifestyle and your financial requirements.
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