No matter your loan type, one thing’s for sure: Your mortgage repayment will always include the interest payable on the amount borrowed.
If you have a Principal & Interest loan (P&I), part of your repayment will also be allocated to reducing the balance of the loan. With an Interest Only loan (IO), your repayments only pay the interest that is due and do not reduce the balance (or the amount you borrowed).
As a result, an Interest Only loan can only be obtained for a limited period – Usually up to five years. At the end of the Interest Only period, the loan will automatically convert to a Principle & Interest loan unless you make an application to extend the Interest Only period.
Before you go ahead and apply for an interest-only home loan, you need to weigh up its potential advantages and disadvantages with your personal situation in mind.