What is an interest only loan?
An Interest Only home loan is one where the monthly payments cover only the interest on the loan and the capital amount borrowed is repaid at the end of the loan. This allows investor to minimise the mortgage repayments in the first few years, while hoping for the asset to gain in value in the long run.
What is the advantage?
Let’s say you own a property worth $400,000, with a $320,000 interest only loan at 5% p.a over 20 years. Your monthly repayments would be $1,879. On the other hand, with a standard principal and interest (P & I) loan, the monthly repayments would be $2,481. The cost savings is a whopping $602 monthly. If this property is rented out, investors may also get a higher rental yield.
Moreover you can claim tax deductions on your loan interest as related expenses in your income tax.
For the Australia Tax Office’s guide to rental property, click here for the PDF Rental Properties 2014. It is also available as a downloadable PDF.
What is the disadvantage?
Because you have not made any payments on your capital amount, you still owe the bank $320,000. This means you have not built any equity in your property. In a rising property market, this is a non issue since the property would likely be worth more in the next few years. Investors can then flip the property and profit the capital gain.
What are the requirements?
- Available to non-resident of Australia
- Suitable for individuals working in Singapore or Malaysia
- Minimum loan requirement of AUD $350,000
- Available for Australia properties that are 6 months from completion
- Suitable for off the plan and refinance
- Available for a limited time period
For more information on this home loan package from the banks, please contact us using the form or email us at email@example.com
Package is subject to availability.
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