What is the difference between Principal and Interest Home Loans and Interest Only Home Loans in Perth?
If you have found a home, chances are you have already spoken to a mortgage broker in Perth such as Loan Monster who has looked at different lenders and what they can offer. Most lenders will offer Principal and Interest repayments or Interest only repayments. So what is the difference?
PRINCIPAL & INTEREST
Firstly, the principal is how much money the applicant has borrowed from the lender and interest is the extra money that must be repaid to the lender above the principal amount borrowed. The interest refers to the interest rate applied to the loan. When you make a principal & interest repayment you are paying part principal and part interest to the lender.
The way home loans are normally structured by lenders results in little of the principal being paid off in the first few years of paying your mortgage. The majority of the P&I repayment will be interest and as you begin to pay down the loan. Gradually as your loan matures you will begin to pay off larger portions of your principal.