Interest Only Loans for Owner Occupiers?

Interest Only for Owner Occupiers: it may just make sense.

Interest only loans aren’t just for investors. They can also be useful if you are an owner occupier where your debt is mostly or fully offset.

The Offset Account Advantage

The big benefits of an offset account are:

• that having an offset account allows you full access to the funds in this account, just like as if they were in any other transaction account.
• If your offset account fully matches your loan, you’re not paying interest on the outstanding loan balance (you basically have an interest free loan).
• Unlike having these same funds in redraw there is no risk of the lender closing your loan due to a nil balance.

So why interest only?

• Cash Flexibility: With offset fully covering your interest cost, this means that there is no need to meet additional payments on this debt. This means that principal payments are no longer needed and can be put toward other projects (such as funding additional investment debt or contributions).
• Allows access to cash funds: Funds held in your offset account remain available for other projects when needed. (obviously this would then lead to interest being charged on any debt that is not offset as a result).

Risks

• If offset funds drop, you start paying interest.
• Interest only terms are limited (often 1–5 years), after which repayments rise.
• Stricter lender rules for owner occupier interest only. 

Is Interest Only a strategy for you?

Interest only with a full offset maximises cash flow control but it isn’t for everyone. For personalised lending and offset advice relative to your own unique situation, contact us at The Finance Brokers on 1300 001 397. We turn complexity into clarity, helping you make smart lending decisions.