Property Investment Tips: Build your portfolio with the help of an interest-only loan

By the resi financial blog team, 18 March 2014

What is an interest only loan

There are a wide range of investment home loan options available across Australia that can be tailored to each individual's personal preferences. Depending on what your final property goals are, there are any number of things to consider and factor into the decision.

But there is one type that seems to be perfectly suited towards property investment. An interest-only mortgage for your investment properties could be the best way to gain the maximum amount of value out of your portfolio. 

What makes an interest-only loan different?

If you've ever had a regular home loan, you'll be aware of how repayments are made up of contributions towards both the balance of the mortgage and interest charged on top of this. Therefore, as you're making repayments, you're slowly paying off the remaining amount of your home loan balance. 

The difference with an interest-only loan is that your regular repayments are only on mortgage interest. Therefore, with this type of loan, you won't be making any progress on reducing the remaining balance. 

How can this help you achieve investment success?

The basic concept behind an interest-only loan is for the short-term holding of real estate. While you're making interest payments on the property, you can also work towards increasing the real estate's overall value. 

Therefore, when you sell the property later for more than the original price, you can pay back the home loan in one full payment while also retaining some profits from the sale. Naturally, there is a degree of risk involved with this. 

For example, if you aren't able to increase the property's value by enough to warrant a sale - or even worse, the home loses value - you'll be required to pay the mortgage out of your own pocket. Speaking to an expert about the options available will help you make an informed decision about your investment future.

Categories: Personal Finance, Property Investment