How to apply for an interest-only loan
Interest-only loans are the best value home loan for many homeowners and property investors. This kind of loan only requires the borrower to repay the interest charged each period, as opposed to making payments towards both the interest and principal.
If you’ve decided that this kind of loan is the one for you, you’re now ready to begin your application process! There are a few things that you need to ensure and prepare before you apply, and following these steps will make it much more likely that your application will be approved.
First step: Consider your current financial situation
When you’re reviewing the best value home loans on the market, the most important part of the application process is proving that you will be able to pay it back. Lending institutions will want to see evidence that you’re making enough money to take on a loan, and are likely to ask for pay-slips and tax returns. If you’re planning on repaying the loan using another source of income, they will want to see evidence of this too.
To get an idea of how likely you are to be able to repay the loan, they may also wish to know your current net worth. This is an overall total of all your assets having deducted your liabilities. It can also be a good idea to calculate your current living expenses, to confirm that you’ll be able to take on a loan, repay it and still afford to maintain your lifestyle.
Another useful indicator as to whether you will be able to repay the loan is your current employment status. While those who have recently changed jobs can still have a loan approved, that factor will make the process more difficult. For your best chances of success, it’s a good idea to show that you’re in stable employment.
Next step: Make sure your history is clean
While creditors use your current financial situation to judge whether you’re a suitable applicant for an interest-only loan, they will also look at your past to predict your future habits. In terms of employment, you’re less likely to be approved if you have a history of changing jobs after short periods of time or have remained unemployed for long periods of time.
You’ll also need to make sure you have a good history of saving, and you aren’t in the habit of spending every cent you earn. This is especially important if this is your first interest-only loan. A clean credit rating is also useful in convincing a lender that you are a desirable candidate for a loan.
Finally: Build your deposit
You will need to put down a deposit on the loan, and this will vary between lenders. Most ask for at least 5%, however putting down more than that could result in lower interest rates for you.
The exact process and requirements will be slightly different depending on which lender you deal with, however the basic principles are the same. As long as you ensure that your financial status, both past and present, indicates that you will be able to repay the loan, you should find yourself approved in no time!