Many mortgage customers are opting for interest-only repayments on their homes; unaware that by doing so, they are failing to pay off any mortgage debt despite rates being at their lowest ever levels.
Not only do interest-only loans fail to make any headway into your borrowings, but they also play a dangerous game that could lead to financial trouble when rates do rise.
With an estimated one quarter of owner occupiers taking out interest-only repayments on their new loans, South West Credit CEO, David Brown, warns of the pitfalls that can come with an interest-only home loan.
“Interest-only loans turn out to be more expensive over the life of the loan and means higher repayments when the interest-only period ends” Mr Brown said.
“As you are not reducing the principal amount borrowed you end up paying more in interest in the long run and depending on the term of the interest-only period, this can result in consumers paying tens of thousands more in repayments over the life of the loan” he said.
Mr. Brown warns Warrnambool consumers to be careful and not get themselves into financial difficulty by opting for an interest-only home loan.
“Consumers need to ensure they will be able to afford the higher repayments when the interest-only period ends.”
“Rates are quite low at the moment so if you are on interest-only and that’s all you can afford and rates increase you could be in a lot of trouble’’ he said.
Interest-only repayments are popular among investors as it allows them to minimise their mortgage repayments in the short term and rely on capital growth in the long term, however opting for interest-only repayments on an owner occupied home loan was not a good idea.

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