Why would i pay interest only on a home loan?

As opposed to paying principle and interest? I know what the difference is, i was just wondering what the benefits of paying interest only are and vice versa. Im in Australia, if that makes any difference. My partner and i are looking into purchasing our first home when i got back to work after finishing maternity leave. What is the maximum loan term for home loans in australia? There was talk of 'lifetime' loans becoming avaliable, but i havent seen any yet.

Why would i pay interest only on a home loan?
I am a real estate agent in NSW.





The maximum term is 30 years.





The benifit of interest only loans come into play with investment properties, You only pay the interest so the payments are smaller and statistically, real estate prices double every 8-10 years so after 10yrs you sell the home- repay the interest to the bank and you have made a profit without affecting yout hip pocket to much (E.g interest only loan $300 a week but tenant pays $250 a week you are only out off pocket $50.





For a house for yourself it is suggested you get principal and interest loan and pay weekly rather than monthly- you should try to pay your own home off as fast as possible. This can also act as a forced savings plan. E.g. if you need to upgrade your home and you have paid $50,000 off the principal and the home sells for $20,000 more than you bought it for you have an extra $70,000 to spend on your new home.





Hope this helps- feel free to message me if you have any other questions.
Reply:The reason that Interest Only loans became popular in the United States is because it allows people that would not otherwise be able to afford a house to buy one and it allowed people to buy more house than they would have been able to afford otherwise.





The interest is the only part of the payment that is tax deductible and becuase the housing market was growing at an astronomical rate, building equity by making payments to principle was not a strong incentive. Homes here were literally appreciating at over one hundred thousand dollars a year.





Also, the interest rates and closing costs were lower on the Interest Only loans than for conventional loans.





Now, the lenders are in as much trouble as the borrowers becuase people are allowing foreclousures at an alarming rate. Why are they walking away? Becuase they have no real investment in the property. They put no money down, have no payments towards their principal and they can't refinance becuase of the loan to value ratio.





I encourage people to buy a house rather than rent as long as you can live with the loan. If you can lock the interest only loan for at least five years, it can be a great tool. Then you have an opportunity to build your credit rating, earn some equity and refinance when you find a more suitable loan.





Best of luck to you.
Reply:The only good time to get an interest only loan is if you know you are going to be selling the property for a profit within a few years. If you purchase the house for 60,000, and can sell it for 100,000, you will be able to pay off the mortgage company. But if you get a 20-30 year interest only loan so that your payments will be low, when that 20-30 years is up, you are still going to owe the mortgage company for the principle balance.
Reply:Interest only loans allow you to buy a more expensive property. The payment is lower than if you were paying principle obviously so your debt to income ratio is more in line with todays requirements. If you are going to do interest only really look at your market and whether or not your area is on the up and up or is changing for the worse. You don't want to be upside-down when you want to sell!


I can't answer the Australia part... sorry.