Wellington, New Zealand -- (ReleaseWire) -- 01/26/2015 --Interest only home loans have been in the spotlight in Australia recently and are fairly common here in New Zealand. They tend to be a common tool for property investors and home owners wanting to keep loan payments low for a period of time.
Whilst on the surface paying principle on your home loan is always the most prudent strategy, interest only loans can be part of a property investor's investment plan. Often paying principle on your family home mortgage first and leaving rental properties on interest only can be tax efficient. Having all or some of your rental portfolio on interest only can be a way of easing cash flow whilst paying down personal debt first.
Obtaining interest only terms on your mortgage is not an automatic privilege and banks will want you to have at least 20% equity before they will consider it. Some banks will also have limits on how long you have interest only terms, for example 5 or 10 years (sometimes longer). Investors would just refinance to another bank to extend the interest only terms if they needed to.
Other scenarios where borrowers might seek interest only terms are for bridging finance, construction loans and when they might be under a bit of financial pressure such as being on one income while starting a family or in between jobs.
Interest only payments are easy to work out as follows: Take the loan amount say $100,000, times by the annual interest eg 6% which equals $6,000 per annum. Then divide this by 12 to get an average interest only cost per month ie $500.
Interest only loans continue to have their place in the borrowing world but should not be normally viewed as a long term format for structuring debt.
About Craig Pope Mortgages & Insurance
Craig Pope Mortgages & Insurance (http://www.craigpope.co.nz) is a leading New Zealand mortgage advisory firm helping make the mortgage and home buying process easy and stress free from first home buyers to property investors.