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Principal and interest or interest only?

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, which means only the interest accrued is paid, and none of the principal. This involves making repayments for a set time (usually 1-5 years) which are lower than principal and interest repayments. 

You might choose an interest only loan period in the case of property investors, for taxation or equity building purposes.

It’s important to keep in mind that if you do choose an interest only loan, you’ll need to ensure your budget for the end of the interest only period, as your loan will then switch back to the higher principal and interest repayments.

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