3 Interest-Only Mortgage Positives You Think Are Negatives

Home Loan in Armstrong CreekMany mortgage borrowers in Victoria consider interest-only home loans as a great alternative to conventional loans. Who doesn’t? It’s basically paying the interest for a set number of years and lower repayments over a certain period.

This is why buyers of houses for sale in Armstrong Creek, Grovedale and other emerging Geelong suburbs find that it’s one of the best deals when looking for mortgages. However, an interest-only mortgage is mostly designed for real estate investors. In many cases, a typical homebuyer with a tight budget, or a borrower that prefers to use the disposable cash elsewhere, would suffer costly consequences when this type of home loan is misused.

If you’ve become lured towards the marketed boons of interest-only mortgages, think twice to see if these benefits really make sense to your financial situation:

Small Repayments Make the Mortgage Affordable

It truly feels your hundred thousands’ worth of property becomes easier on the budget if your repayments don’t include the principal. However, it doesn’t necessarily mean your mortgage is more affordable. As a matter of fact, it becomes costlier.

If you do the math, your principal would remain untouched until the interest-only period is over. From another perspective, you’re not really making any progress on your mortgage until that period ends. If you decide to finish repaying your loan, all of your interest-only repayments are considered extra payments that really did nothing to lower your loan amount.

Low Minimum Payments Lead to a Loose Budget

Unless the money you gain from investing your spare cash beats your interest-only payments, doing anything that would compromise the progress of your mortgage repayment is usually not worthwhile. More often than not, you’d just incur more debt over time.

READ  Mosquito Madness: Creating a Safe Zone for Your Household
Tax Deductibles Help You Save Money

An interest-only mortgage allows real estate investors to maximise their tax deductibles. You could enjoy that very benefit too, except you’re going to live on that property for a long time. Investors don’t mind seeing the principal to increase because home appreciation could still make profit in the end. On the other hand, you’d have to pay for the untouched principal and its interest out of your pocket at some point.

Much like other types of mortgages, an interest-only home loan is designed to serve a particular need. Even if it seems to fit your financial situation at first, do your due diligence to see its potential drawbacks.