Principal and interest is the most common type of home loan. This involves making repayments which pay down some of the principal balance plus the interest accrued.
However, some people opt for an interest only loan period. This involves making repayments for a set time (usually 1-10 years) which are lower than principal and interest repayments. as they only cover the interest being accrued and none of the principal.
You might choose an interest only loan period if you know your budget is going to be tight for a few years, or in the case of property investors, for taxation or equity building purposes.
If you go down this road though, you’ll need to make sure you budget for the end of the interest only period, as your loan will then switch back to the higher principal and interest repayments.
Home Loan Guide