Monday, March 28, 2005

Interest Only Loan Australia Information

Interest Only Home Loan

Interest Only as the name suggests requires the borrower to repay the interest only on borrowed funds and nothing off the principal. The interest rate can be variable or fixed and the term is usually relatively short, often only one to five years. At the end of the loan period you still owe the full amount you originally borrowed. You then need to take out a new loan or convert to a variable interest rate.

Interest Only loans are popular with property investors in particular for several reasons. When interest rates are rising property investors have a degree of insulation from excessive repayments that may otherwise trigger cash flow problems. Regardless of whether interest rates are rising or falling, the fact that interest only repayments are less than repayments on a principal and interest type loan, means that an investor retains more profits from rents or can afford to purchase a higher value property.

Interest Only home loans for average home buyers are not very common in Australia, but in some countries where property is very expensive they help to make owning property more affordable.

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