Interest-Only Loan: Under an interest-only loan, usually the borrower makes no principal repayments.
The repayments are for the amount of interest only, which has accrued on the loan. These loans are usually for a short period of around 1 to 5 years.
Why would you choose an interest only loan? Typically used by investors or where cashflow is tight for a short period of time, they can maximise their cashflow which could mean they can hold more properties and hopefully make a big profit from them.
its important to understand how you’re going to make the ongoing repayments when you’re thinking about taking an interest only loan.
In most cases there’s nothing preventing you from paying principle if you so choose, and you can switch back to P&I payments as well. Consider them a tool that works particularly well in certain circumstances.