3 strategies for repaying interest only loans – How to make it work for you
There is a lot to think about when it comes to your home loan. One financing option worth considering is to opt for an interest only loan. This means that you make repayments to cover the interest only on the principal amount over the lifetime of the loan. However, there are both benefits and disadvantages that need to be taken into account if you are considering this option. There are also helpful strategies that can be put in place to make this option work for you.
Weighing up the benefits
Having an interest only home loan will reduce the amount of your monthly repayments, as you are not required to pay principal. This is a great option if you are financially restricted or have other financial priorities. For example, the money you would usually be paying to cover the principal amount can be put towards paying for home improvements. This option offers greater financial flexibility. As well as this, your interest only loan generally has the same features of a standard loan.
However, an interest only loan is only available for a term of one to five years. So eventually, you will need to start paying off the principal amount. This means that you will need to ensure that you’ll be able to afford both the principal and interest in the future. Paying off interest only means that you’re not paying off the actual amount of your loan. This also means that you are paying more interest over the life of the loan.
Top 3 strategies from refinancing specialists
- Pay extra where possible – your interest only loan requires you to pay the minimal amount, but this doesn’t mean that you can’t put in extra money. Try to put additional funds into your home loan whenever you can, as this can make all the difference in the future.
- Have a mortgage offset account – using a mortgage offset account means that the money you have in that account is subtracted from the interest payable on your loan. This can save years on your home loan term.
- Review your loan – speak to a financial specialist on a regular basis to make sure that paying interest only is still suitable for you and stay informed about the options available to get ahead on your home loan. Don’t just stick with the same loan year after year without reviewing your home financing situation.
Speak to the finance specialists
When it comes to your home loan, it pays to speak to the experts. At Finance Detective, we do more than just act as a broker to help you decide which loan is right for you. We offer a personalised, holistic service to assist you with a complete solution to your financial wellbeing.
We are industry leaders and pride ourselves on our attention to detail and high level of customer service. Whether it’s home loans, refinancing, commercial loans, or insurance, we are experts at finding the best financial solution for your unique situation.
We are located in Mt Lawley, Perth, and our friendly team would love to hear from you. If you would like to discuss your options for you home loan, or are thinking of refinancing, contact Finance Detective today. Call us today on (08) 9289 7777.