A popular property investment loan that could help to get you on your way to building a strong portfolio is an interest-only mortgage. The difference between these types of loans and a regular home loan is what makes them perfect for investing.
Repayments for normal home loans go towards paying off the principle of your mortgage, plus any interest you owe for that period. This means you're slowly but surely chipping away at the overall home loan balance with each repayment.
With an interest-only loan, the only repayments you make are on the interest owed – leaving the main balance of the mortgage untouched. At the end of your home loan's lifecycle, you're expected to repay the balance in full.
This may seem counter intuitive, especially if the balance owing on your home loan is in the hundreds of thousands, but there are a number of benefits to undertaking this type of mortgage – especially for property investment purposes.
Successfully utilising an interest-only home loan comes from smart market research and an eye for spotting a great deal early on. With property investment, the overall goal is to earn a profitable return from your purchase. This often comes in the form of capital gain, or the increase in property value over a period of time.
This is the key to utilising an interest-only loan. Finding a property that will undergo a significant amount of growth over the lifecycle of your loan, while making minimal interest repayments, means that when you finally sell the property for a profit, you can pay off the balance of your loan in one go while keeping a substantial profit.
Naturally, there are a lot of risks involved with this approach to investment, so it pays to discuss the options available to you with a financial expert.
You can contact a Smartline Mortgage Adviser on 13 14 97 for home loan advice. Or complete our call request form and we'll call you!
DISCLAIMER: The information contained in this article is correct at the time of publishing and is subject to change. It is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Smartline recommends that you consider whether it is appropriate for your circumstances. Smartline recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.