HOMELOANS
BY
Interest Only Mortgages
Monthly
payments of interest are only paid and no reduction of the mortgage amount
is made over the term.
Sometimes called a "flat" mortgage.
EXAMPLE:
A
mortgage for $120,000 at an interest rate of 6% would have "interest
only" payments of $600 per month. The total interest cost over a 25
year term (ie, for comparison purposes as generally the maximum term is
only 5 years) assuming no interest rate change, would be $180,000.
BENEFITS:
•
Lowest loan payments as no principal being repaid.
•
Appeal more to property investors wishing to maximise cashflows
and who can obtain taxation benefit through deductibility of interest
charges.
•
Useful to minimise loan commitments prior to a future event.
Eg, spouse takes 1 year maternity leave and then returns to work.
DISADVANTAGES:
•
Generally only available for short terms of up to 5 years.
•
No structured principal repayment therefore amount owing at end
of term is same as at the beginning.
•
Lenders require greater equity levels.