Interest only

Interest only payments require the borrower to pay the interest that accrues on the primary balance for a certain period, typically set for 1 to 5 years. During this time, the borrower is not required to make any payments towards the principal amount which keeps the repayment amount lower.

Key features:

Temporary period: Normally Interest-only payments are offered at the begging of a loan, usually from one to five years. Some lenders allow you to extend this period for another 5 years, maximum 10 years and some don’t. Once the interest only period end the repayments will transition to principal and interest payments.

Lower initial payments: As the borrower is only paying the interest portion of the loan, initial payments are lower

Higher future payments: Once the interest only period ends, the borrower will start making payments that include the interest and the principal, these repayments will be much higher monthly payments.

Interest only payments can be beneficial for some borrowers, especially in circumstances where they expect to have a pay rise in the future or if they plan to sell the property before the interest only period expires.