Interest loans are becoming popular as the household budget grows. It could be a great idea in certain circumstances but are generally not advisable if you’re doing it to pay bills or you’re taking on mortgage to increase your bank balance. In the interest loan you repay only the principal during the term of the loan; therefore, repayments are lower than with a standard principal and interest loan.
Pros:
- Lower repayments initially so you have more money to renovate/improve the property.
- Cuts the cost of buying a residential investment property in the short-term, which could allow you to make greater contributions to your principal place of residence.
Cons:
- There will be a sudden increase in repayments at the end of the Interest Only period and the loan converts to Principal and Interest repayments.
- If you don't plan your finances carefully, you might fail to make the principal payments when the time comes .