Pros and cons of interest-only home loan repayments

Whether you’re applying for a new home loan or want your existing loan to work better for you, you’ll want to consider your repayment options.

Interest-only home loan repayments are an option where you only pay the interest on your loan for a set period, without reducing your principal amount.

Here are some things to consider when deciding if interest-only works for you.

Short-term boost

When only paying interest, your repayments are lower compared to a loan with principal and interest repayments. This can free up cash flow for other expenses or investments.

If you’re experiencing a change in circumstances, paying interest only could make your loan more affordable in the short term.

Total interest

A downside of an interest-only period is that you aren’t reducing the principal balance of your loan or building equity.

As the principal amount remains the same, you may pay more in total interest over the life of the loan than you would with principal and interest repayments.

Changing rates

When the interest-only period ends, you begin paying back both principal and interest. This means your monthly repayments could increase significantly.

Interest rates could also change at any time throughout your interest-only period, so it’s important to prepare for repayment increases.

Handy features

You may find it helpful to explore other loan features, such an offset account, to help reduce your loan repayments while also growing equity.

Alternatively, a redraw facility could help you increase your cash flow by allowing you to withdraw funds from extra repayments you have made on your loan.

Expert support when you need it

A lending specialist can help you explore your loan repayment options and how to structure your home loan to fit your needs.

Your Liberty Adviser will take your individual circumstances into account and help you find a solution that works for you.

Tailored support is just a click away – find your local Liberty Adviser.