If you are considering taking out home or other kinds of loans, it’s important to know the different options there are from various lenders in the Perth area. The two mains types of loans are those that you have to repay on the interest only and those that you must repay on both the principal and the interest. The main difference lies in how much you repay but there are other factors that set the two apart and make interest only loans the preferred kind for any in Perth.
Generally speaking, principal and interest loans lock you into paying a fixed amount every month, sometimes a higher payment than the average loan. While you obviously must pay interest only loans monthly as well, there is much more flexibility with them because you can usually contact your bank or lender and change the amount for that month.
This is a great option to have because sometimes it can be difficult to repay on any given month due to unexpected financial incidents, such as a family member getting sick or unforeseen damage being done to your automobile. While this may not be often exploited, it’s nice to have this safety net in case life happens.
Another difference with interest only loans lies in how the tax system works with them. With current tax formulas, you would end up paying less on interest only loans, especially if you claim the loan as deductible. Principal and interest loans also provide a tax buffer on the debt you have been shaving off. The downside to this is that if you use the saved money on something that doesn’t generate income, it loses its tax deductible status. Either loan affects how your taxes are viewed however.
The two main types of loans are principal and interest and interest only and both have differences that affect flexibility and tax options. Interest only loans are generally more flexible and both affect how taxes are viewed.
Check with your mortgage brokers in Perth and see which ones work best with your situation. To learn about how we can help with any of your loans, call us on (08) 9472 9766.