Loan Application Document With Approved Stamp

Interest Only Loans

Well, Easter is nearly here.  Happy Easter to everyone for the weekend.

I thought it was a good time to go over one of the topics most clients love and that’s interest only loans.  It’s probably one of the less understood areas and there’s still this belief that it’s best to pay principle and interest and make sure the loan on your investment property is paid down.  This is correct but it’s much better to do it via the use of an offset account.  I won’t go through the details of how this is done during this blog, but will touch on it in later newsletters.  If you’re after extra information on it please email me anytime.

The reason for this blog about interest only loans is to remind people to keep on top of the loans they have.  When you first setup an investment property with an interest only loan it may have a 1 or 5 yr term on it.  So you may find that the loan will default back to a principle and interest loan after just 12 mths and your repayments will go up and you may not even notice.  I’ve had many clients not notice the change to principle and interest at all and as a result they are really struggling to understand why the home is costing them more.

You can apply to have the loan go interest only again and I’d suggest that you request it for a 5yr term.  If you do have extra cash that you’re saving it’s far better off in the offset account and not paid into the loan.

So check your loans and maybe even ring the bank to make sure this isn’t you.  It might also be a good time to review the current interest rate you’re on and make sure this is also competitive.  As usual please call or email if you have any questions at all.