Professionals Burleigh 
Buying a home can be one of the most significant financial decisions you make in your life. And with so many factors to consider, it can be overwhelming, especially when it comes to choosing the right type of loan repayment.
What do “principle” and “interest” mean?
When it comes to home loans, you generally have two options: principal and interest, or interest-only. Let’s break down what these terms mean.
The loan “principal” is the amount you borrow to fund your property purchase. It’s the difference between the total cost of the property and your deposit. The “interest” is the amount charged by the lender for borrowing the principal amount.
Principle and interest vs. interest-only
Now, let’s take a closer look at the two most common types of loan repayments.
Principal and interest repayments mean that you pay off both the principal and the interest charged on it. One of the significant advantages of this type of loan is that you pay less interest over the life of the loan. Plus, you might be able to pay off your loan faster, which means you’ll own your property outright sooner. However, the disadvantage is that repayments are higher than interest-only, and they may not be as tax-efficient for investment loans.
On the other hand, with interest-only repayments, you only pay the interest portion of your loan for a set period, usually the first five years of your loan. While your mortgage repayments will be lower during this period, you’ll end up paying more interest over the life of the loan. Another advantage of interest-only loans is that they can offer possible tax benefits for investment loans. However, there are some disadvantages to keep in mind, including a higher interest rate during the interest-only period, higher repayments once the interest-only period finishes, and more interest payable over the life of the loan.
When choosing between these repayment types, it’s important to consider your personal financial goals and circumstances. If you’re looking to save on interest over the life of the loan and pay it off faster, then principal and interest repayments may be the way to go. If you need lower mortgage repayments for a limited time, such as when taking time off work to be a primary carer, then interest-only repayments may suit your lifestyle. Use this mortgage calculator to get an estimate of repayments to guide your mortgage choices.
In conclusion, understanding your options and choosing the right repayment type can help you save money and achieve your financial goals in the long run. So, take your time, weigh the pros and cons, and make a decision that works best for you.
If want you to chat to a mortgage broker on the Gold Coast, chat to Phil McLaughlin from Nectar Mortgages to find the best options for you.
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Disclaimer: The information provided in this blog post is for general informational purposes only and is not intended to be a substitute for professional financial advice. Always seek the advice of a qualified financial professional regarding your individual circumstances. We do not guarantee the accuracy or completeness of the information provided in this blog post and are not responsible for any errors or omissions.
