Question

Which of the following is (are) the reasons for some people to choose interest only loan? (There may be more than one correct answer. You will lose marks by choosing a wrong answer. The minimum mark for the question is zero.) Select one or more:

a. Interest only loan requires lower periodic repayment over the whole term of the loan.

b. The interest only loan is less expensive over the whole loan term.

c. Banks usually apply lower interest rate for interest only loans.

d. The interest only loan provides more tax deductions for investment properties.

e. The interest only loan requires lower periodic repayment during the interest-only term.

Answer 1

Answer:

d. The interest only loan provides more tax deductions for investment properties.
e. The interest only loan requires lower periodic repayment during the interest-only term.

The interest free loans are preferred due to their lower periodic repayment during the interest only term i.e. during the specified initial years, the borrower just have to make interest payments to the lender. After a specified period, principal amount is being paid either lumpsum or in installements as per the agreement.
In case of interest only home loan mortgages, the interest payments are fully tax deductible which in turn becomes useful for people who are under high tax bracket to reduce their tax liability.