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Understanding the Pros and Cons of Interest-Only Mortgages in Gore, Manapouri, Te Anau or Invercargill

If you are in the market to purchase a new home in New Zealand, then you are also probably starting to think about a mortgage loan. As with anything, there are multiple types of mortgage loans that you will want to consider before settling on the best method for buying your home. Which form of mortgage is 'best' will vary from one home buyer to the next. However, one form that has been growing in popularity in New Zealand in recent years is the 'interest-only' mortgage loan? Is this type of loan the right option for your mortgage in Gore or Manapouri? Or should you go a different route? Read on to learn more.

The Interest-Only Mortgage: What It Is and Who It Serves

As the name applies, interest-only loans are mortgages where you are only required to make interest payments for a fixed period. Usually, this period will last for the first five or ten years of the mortgage. Once the interest-only period ends, the loan reverts to a more standard mortgage, where you make payments on both interest and principal.

At WealthCreators, clients will often come to us asking about the pros and cons of interest-only mortgages in Te Anau, Invercargill and throughout New Zealand. For the most part, the pros and cons are straightforward. During the first five or ten years, interest-only loans have much lower repayments. Since you aren't paying down the principal at all, you keep that money in your pocket. This factor makes interest-only mortgages incredibly appealing to young families, who want to buy homes but don't necessarily have the money to afford traditional mortgage payments.

Interest-only loans can also be a good option for buyers who wish to renovate homes and 'flip' them as investments. These types of buyers save the principal money and put it toward adding value to the house. They then turn around and sell the house for more money than they paid for it, pocketing the difference (less any interest payments).

The big con of pursuing an interest-only mortgage in Invercargill or Gore is that you aren't building any equity in the property. Since you are just paying the interest, you are essentially paying rent on your home for the first few years. You still hold the equity that you purchased with the down payment, but you don't add any extra equity until the interest-only period runs out. When that happens, your payments will be considerably higher than they would have been if you had just used a traditional mortgage structure from the beginning. In other words, you don't save money by choosing an interest-only loan: you just put it off for later.

Choosing the Right Type of Mortgage in Te Anau, Gore, Invercargill or Manapouri

If you are considering an interest-only mortgage in Te Anau or Manapouri, it is a good idea to sit down with a wealth adviser to talk about your options. At WealthCreators, we can tell you more about interest-only loans and how they work. By learning more about your financial situation, your investment goals and the property you are thinking about buying, we can also help you weigh the pros and cons and decide how they impact you. To get started, complete our contact form.

 

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