Interest Only New home loans

When you look at taking on a new building project, whether it be a renovation, extension or a new build, one of the most important things to look at are your finances. Are you in a position where you can pay cash, is that the best option for you? Do you have equity in your home to cross secure against the new project and if so is this really the best choice? Your finance options should be discussed in detail with your lender or financial advisor. However, as with most things, it is important to do your own research, and analyse the figures for yourself.

Interest only loans are a great resource for many different situations, if you are looking to build a new home while still leaving in your current mortgaged property, reducing the payments on your current home to interest only can be a great way to free up some extra cash flow. Investors often use interest only loans as a way to reduce upfront costs and take advantage of tax deductions. Interest only loans absolutely have their place in the property market, and when used wisely can be a great resource.

However, it is important to carefully consider if an interest only loan is suitable for you. When making interest only repayments you are decreasing your initial cash out put but drastically increasing it in the long term. Making interest only repayments for just a few years can add tens of thousands of dollars to even a modest home loan.
A report recently released by The Australian Securities and Investment Commission (ASIC) has found lenders are falling short when it comes to affordability calculations on interest only home loans. In most cases the banks are relying on expenditure benchmarks and failing to consider individuals circumstances.

So please, do your research, talk to your lender and consider the benefits of an interest only loan as well as the negatives.

To read the ASIC report in full, click here

For further reading on interest only home loans, click here to read a recent article