Over the life of this loan the borrower is only required to make interest payments. The original amount borrowed is not reduced over the life of the loan. It is repaid or refinanced at the end of the period.

Interest only loans are most common on investment properties. The borrower will expect the value of the investment property to rise over time and hence make financial gains with the capital appreciation. The interest payments will in most cases be tax deductible, and this with a number of other allowable deductions will assist in lowering the borrowers tax payable.

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