Читать книгу 30 Properties Before 30 - Eddie Dilleen - Страница 16

Principal is the balance of the actual loan being paid off. Interest is the charge paid to the lender for the privilege of borrowing the money from them.

Mortgage loans are usually set at a default principal and interest right from the start, which means you are paying off both with each repayment you make. It is also possible to switch to an interest-only loan for a period (usually between one and five years), which will lower your repayments.

Interest-only loans offer some short-term advantages, including decreasing your initial outlay and freeing up cash flow when purchasing a property. However, borrowers sometimes run into trouble when the interest-only period ends and their repayments suddenly increase again, so it is important to use these loans as part of a thought-out strategy to ensure you don't get stung by a shortfall. You might, for example, have a plan in place to increase the rent at the end of the interest-only period.