Principal and Interest
‘Principal and interest’ and ‘interest-only’ loans are designed to give borrowers a choice in the way they make their repayments, and how much and when they repay. Both will suit different borrowers’ needs and circumstances.
A principal and interest loan requires borrowers to make payments on the interest accrued on the mortgage, as well as repay a part of the principal. In this way, repayments on principal and interest loans actually reduce your debt. Repayments are calculated and spread out so that the last scheduled payment fully pays out the loan.
These repayments will be higher than for an interest-only loan, but they will help borrowers pay off their home loan. If you are planning to buy a property to live in long term, then it is likely a principal and interest loan will better suit your needs.
Repaying both interest and the principal will allow you to gradually increase your equity in the property by reducing the size of your mortgage, and at the end of the loan term you will be the sole owner of your home.
