Today MyRate reviews some aspects of Interest only payments.
The standard loan term is 30 years. Borrowers can elect to make interest only payments for stated periods from one to five years. Some borrowers, often when borrowing to buy an investment property, elect to make interest only payments. For investors, this make sense, as the primary aim of buying an investment property is to achieve capital gain, having a tenant help pay the interest, while at the same time getting tax benefits.
Some borrowers, however, elect to make interest only payments for the first five years of the 30 years term because it reduces their monthly payments during that sometimes difficult few months after settlement. As time goes on and they ‘find their feet’ in their new circumstances, plus they get used to budgeting their payments, it usually becomes easier to make some small extra payments.
With the Myrate loan, you can make extra payments in any amount at any time with no fees, and every extra dollar you pay into the loan is a dollar you do not pay interest on. With a disciplined approach to your payments, this is a great way of saving money, and you have the benefit of being able to redraw the extra payments for those special occasions such as birthdays, Christmas etc.
There is a one small catch though, with making interest only payments. Once the five year interest only period is finished, the loan reverts to principle and interest payments. If no extra payments have been made over the interest only period, the loan balance must then be paid off in 25 years, not 30. This results in higher monthly payments, however, by the time this happens, most borrowers have little difficulty budgeting for that little bit extra per month.