Bendigo Bank Tackles Interest Only Loan

House prices continue to rise, leading more and more homebuyers to make the most of the boom by purchasing an investment property. So naturally, the big banks are cashing in on the action by creating tailored home loan products, such as the Bendigo Bank Interest Only Loan.

An interest only loan means that your repayments cover only the interest component of your loan. A product such as the Bendigo Bank Interest Only Loan offers lower repayments than a principal and interest loan, which may provide your cash flow with a helpful boost.

The Bendigo Bank Interest Only Loan allows you to choose from variable or fixed interest rates for a maximum term of five years. Fixed interest is a popular option for interest only loans, as it means you can budget for your repayments years in advance without having to worry about fluctuating interest rates affecting your investment. After the five-year term of your interest only loan, you are generally required to repay the principal as in full at the end of the loan term.

There is an option to make principal repayments with the Bendigo Bank Interest Only Loan, however, if you pay more than 20% of the principal during a period of fixed interest, you will be charged a break fee.

As the principal is generally not paid until the end of the loan term, interest only loans such as the one offered by Bendigo Bank are often popular with investors who plan to sell the property for profit in the short-term, but can be risky for investors with long-term plans for their investment property.

Providing your investment property is generating income, the interest you pay on your loan is 100% tax deductible. So your investment property can increase in value and generate income for you while the cost is kept to a minimum, although remember to budget for fees and charges.

Bendigo Bank charge an application fee of $150 for their Interest Only Loan, followed by a $55 settlement fee. On top of these costs, valuation, legal and governments fees and charges apply.

If you have decided to borrow to invest, speak with your financial broker first to find if an interest only loan is the right financial solution for you.