Although many Australians seeking to finance a home purchase recognise what a standard home loan entails – monthly instalments that include repayment of some interest and principal – interest only loans are becoming a poplar best mortgage choice.
Investor Choice Beginning
An interest only choice for a best mortgage loan had its beginning use designed for people seeking to make property purchases for investment purposes. These products offered the best mortgage financing solution because they offered many standard loan features along with the benefit of a lower interest rate. Higher housing costs, even in the investment market, make interest only products attractive to owner-occupiers as well who wish to minimise monthly repayments while also looking to afford more expensive properties. Recent reports indicate that one out of every owner-occupied home is funded through an interest only loan as a best mortgage choice. This loan choice is on the rise.
Short Term Option for Best Mortgage Choice
Many consumers now consider an interest only home loan as the best mortgage product especially for short term plans. When a well informed real estate investor applies a great deal of focused discipline, use of an interest only loan allows for the investment of funds saved in other areas paying higher returns. A savvy real estate investor can make greater use of their available money by selecting an interest only loan as their best mortgage choice. However, obtaining an interest only loan to use money saved through lower monthly repayments to put food on the table, pay for car and petrol or any other living expenses is not a wise choice. These loan products are not the best mortgage choices for long-term needs. Typically, average time spent in one house before selling or refinancing is five to seven years. Therefore, securing an interest only loan as a best mortgage should cover this type of short-period need. This type of loan, when use for a short-term, is a best mortgage option for people “flipping” homes – buying depressed properties, renovating and then selling quickly for a profit. It is also is a best mortgage product for people needing a large amount of purchase funds since savings will be far greater than if securing a small loan.
Build and Rent Situation
Additionally, people seeking to purchase their first home may consider a short-term interest only loan as their best mortgage choice. For example, when building a new $250,000 home, an interest only loan is approved, minus a 10 percent down payment. The borrower arranges for interest only payments during the first 12 months – covering all of the building and initial move-in time – where repayments are much lower allowing the borrower to afford monthly rent payments and mortgage repayments as well. During the house-building process, the borrower’s bank makes payments to the builder. Interest is added to the loan after each builder instalment is paid. The borrower then makes a loan repayment reflecting just the interest charged for the initial year of the loan.
This way, the borrower stays current with a home loan while meeting monthly living expenses until the house is completed and moving in become possible.
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