You repay only the “interest” on the amount borrowed weekly, fortnightly or monthly, usually for the first one to five years of the loan but some offer longer terms if an “investment” loan. But recent government pressure has resulted in slightly higher rates for “Interest Only” loans. Because you’re not also paying off/reducing the principal, your monthly repayments are lower. At the end of the “Interest Only” period, you begin to pay off both interest and principal so the repayments will be higher for the remaining loan term, but will also depend on the interest rate at the time, but you can refinance for a further “Interest Only” period.
These loans are especially popular with investors who plan to pay off the principal when the property is sold or pay it down quickly and when planning to retire and live off the rent, or sell having achieved capital growth. You can pay off extra off the loan if you want to anyway if variable without penalty. IF on a fixed rate/term you may not be able to pay extra and “Interest Only” rates are usually higher than the current “Principal & Interest” rate when you pay it down/off.
Noting also – if an “Investment loan”, only the “loan interest” is tax deductible (not “principle” payments)…plus other fees are deductible eg holding costs wrt the property (rates, body corp, if applicable, and insurance, maintenance etc)
