Compare interest only investment loan rates

The one thing that you can guarantee in life, along with death and taxes, is that interest rates will change. Depending on pronouncements by the central bank, they could go up or down, or they could remain static for a period of time, depending on the economic climate. When you start to do your research on investment loan rates for a second or further property, you may be offered a range of products.

As well as the standard fixed, variable or split rates, as with standard mortgages, you could look into interest only investment loan rates to see if you think such a loan would be suitable for your needs.

What is an interest only investment loan?

Usually, when people take out a mortgage, they pay interest on the sum borrowed together with an agreed amount that reduces the principal sum over the period of time of the loan. The idea is that at the end of the mortgage term, you have paid off everything that you owe and own the property.

With an interest only investment loan, your repayments just pay the interest part of the loan, they do not reduce the principal sum. It gives you the opportunity to manage your cash flow by making smaller monthly repayments than for a standard home loan, and when you can afford some extra repayments you can put them towards the principal. Depending on your lender, you may be able to get a flexible repayment schedule so that you can have greater control over cash flow.

What are the risks with this type of loan?

As with any loan there are risks, the main one being a change of personal circumstances where your income is suddenly diminished. It's one reason why an interest only investment loan could be attractive, with those lower monthly repayments and more flexibility.

Another risk is that interest rates rise and are then passed on by your lender, meaning that you'll have to have additional resources to make your repayments. The flip side to this is that if interest rates go down, your lender should (they don't always) pass the cut to you, potentially enabling you to put some money towards paying off the principal as well.

How do interest only investment loan rates compare with other products?

This is where you need to do your research to source the best interest rate and conditions that you can.

It's important to remember that although you may be able to get a fixed rate for a period of time, you are still not paying off the principal sum. This means that at the end of the loan period, you will still have to provide the money to pay this off. Some people will sell at the end of the period, hoping the property has increased in price so that they make a profit, while others may use a savings vehicle looking for good returns over a period of many years to use as repayment of the principal.

Whatever you decide, do some thorough research to determine what's best for you.