• You repay only the interest on the amount borrowed usually for the first one to five years of the loan, although some lenders offer longer terms. Because you’re not also paying off the principal, your monthly repayments are lower. At the end of the interest-only period, you begin to pay off both interest and principal. These loans are especially popular with investors who plan to pay off the principal when the property is sold, having achieved capital growth.

    Pros

    Lower regular repayments during the interest only period.

    If it is not a fixed rate loan, you have the flexibility to pay off, and often redraw, the principal at your convenience.

    Cons

    At the end of the interest only period you have the same level of debt as when you started.

    If you’re not able to extend your interest-only period, you could face the possibility of increased repayments.

    You could face a sudden increase in regular repayments at the end of the interest-only period.

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