An Interest Only loan allows the borrower to repay only the interest (as opposed to the principal amount and interest) for a set amount of time as agreed with their provider.
Feel at home with Home Loans by understanding interest-only loans.
With a standard principal and interest loan, part of the principal, the original loan amount, is paid off with each repayment.
With an interest only home loan, for an agreed period of the loan, the borrower only repays the interest. Once the interest only period ends, the borrower is then required to pay principal and interest repayments, for the remainder of the term, to ensure the loan is repaid.
It's worth considering that these repayments will be higher, which will result in more interest being paid over the life of the loan.
People with irregular income may also prefer an interest-only loan, so they can pay down the loan, or offset lump sum payments, when it suits them, rather than paying a regular monthly amount. However the loan must be repaid in full within the loan term.
If you're an owner occupier, with a steady income, a principal and interest loan may be suitable, as you'll pay less interest in the long run, when you make the minimum required payment over the life of the loan.
Helping you understand interest only loans, because Home Loans are what we do.