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3 Strategies for Paying Interest Only Home Loans

Ronnie Elhaj
03 May 2016


Standard home loans work on principal and interest: homeowners pay back monthly interest fees and a chunk of the principle cost of the home. However, they aren’t the only loans available, and some people choose to go with interest-only loans, meaning the principle payment is removed and they are only paying back interest as a base payment. Many borrowers choose this option because it is a good solution for those who want the option to have a lower monthly payment, but access to repay back the principle aspect of the loan as they please.

Why Choose an Interest Only Loan?

So, who is suited to an interest-only home loan? Primarily, borrowers choose interest-only loans when they are tight on money initially, or want their finances to go elsewhere. Investors, first home buyers, those wanting to make initial home improvements, or those hoping to build their home rather than buy an existing property. It’s important to consider your current and ongoing financial situation when entering into an agreement for an interest-only loan, as those who stick to only paying back the set amount of interest will not make any progress in eliminating their home loan debt.

There are a few strategies to take into account if you do choose to go with interest-only, to ensure that you are taking advantage of the loan.

1. Pay Extra

Firstly, pay back extra on your loan when possible – once those initial projects are over, your investments are stable, or you have a bit of extra cash – consider putting it into your loan to ensure you are making progress on paying it off.

2. Separate Mortgage Accounts

Second, consider getting a mortgage offset account: the money in this account will be subtracted from the interest payable on your loan, and can cut down the term of your loan by years if done correctly.

3. Check with a Financial Advisor

Third, ensure you are on top of your loan and checking in regularly with a financial advisor to discuss whether it is suitable for you and if there are other options available that may suit you at different stages of your life.

Choosing a home loan can be tricky business, which is why Nicheliving Home Loans exists, to help you wade through the confusing stuff and come out the other side with the perfect loan for you! We understand the difference between standard loans and interest-only loans, and can help you discover what is perfect for you and your finances. Make the hop today and give us a call on (08) 9483 0000!