So, the longer the interest only period, the higher your repayments. This set-up can be helpful if you need more cash flow to pay off other debts, or if you’re taking some time off work and have a reduced income.Īfter the set period of time, you’ll automatically switch to paying the principal and interest, and your repayment amount will increase, to ensure your loan is paid within the original term.
You can structure your loan so that for a period of time between 1-5 years, your repayments cover only the interest portion of your home loan, plus any fees – therefore the amount you’ve borrowed doesn’t change as you make repayments. But near the end of your loan, you’ll have less interest to pay, so a higher percentage of your loan balance will go towards paying off principal. This is the most common kind of repayment type.ĭepending on the structure of your loan, when you first buy a new home, you’ll often be paying off a smaller amount of the principal. Principal and Interest repayments means that your repayments cover your principal (amount borrowed), plus interest on the outstanding principal, as well as fees and government charges.
