Can you still get an interest-only home loan?

Adam Smith 28 July 2017 NEWS

Coins and a house

Interest-only loans are getting harder to obtain, but you can still get one if you know where to look.

In March of this year, the Australian Prudential Regulation Authority (APRA) put banks on notice that it would cap new interest-only lending at 30%. This has seen banks scramble to wind back their interest-only lending. Most of them have done this by disincentivizing interest-only borrowers with a series of steep rate hikes.

But just because it’s become harder, it doesn’t mean interest-only loans are impossible to obtain. There are still good deals out there for the right borrower. We spoke to mortgage broker Zak Avery of Blue Fox Finance in Mitchelton, Queensland, and he shared his insight on the best way to qualify for an interest-only home loan.

Why get an interest-only home loan?

Mortgage broker Zak Avery

Zak Avery

The reasons for getting an interest-only home loan can vary depending on why you’re borrowing. An interest-only home loan can appeal to investors because of the tax benefits, Zak explains.

“The most common and sensible reason is when they also have an owner-occupied loan. Paying interest-only on the investment portion will help keep the tax benefits high whilst the extra cash is used to pay down the owner-occupied loan quicker,” Zak says.

This is because investors can deduct home loan interest payments from their taxes. Interest-only home loans allow investors to maximise their cashflow while offsetting their expenses on their taxes.

For owner-occupiers, the situation is very different. Zak points out:

“The only reason it makes sense to put an owner-occupied home loan on interest only is if the money can be better spent elsewhere. If you’re paying 16.00% p.a. on a personal loan or credit card, then it makes sense to have an interest-only home loan at 3.78% so that all your extra cash can be used to pay off your other debts first.”

However, Zak adds an important caveat:

“For most people, it is generally recommended to have a principal and interest home loan.”

Can you still get an interest-only home loan?

Interest-only home loans might be harder to get, but they are still available. According to Zak, investors can definitely source interest-only loans, though they’ll generally pay a higher rate.

To give yourself the best chance of success, Zak recommends making your case to the lender you choose.

“Being able to justify the reason for applying for an interest-only home loan will go a long way in helping you get your application approved. It’s also important to explore different banks when deciding where to apply, as each bank has a different policy surrounding interest-only loans, which means some are more inclined to approve interest-only applications than others,” he notes.

For owner-occupiers, it’s likely to be tougher. Once again, Zak says it all comes down to the reasoning for choosing interest-only repayments over principal and interest payments.

“Firstly, you need to have a solid explanation and justification as to why you’re applying for an interest-only loan. Secondly, you will want to have a solid deposit of 20% or more. Applying for an interest-only owner-occupied home loan with a 5% deposit is unlikely to get approved by most lenders.”

How to compare interest-only home loans

Many lenders have sharply increased their interest-only home loan rates in order to push borrowers toward principal and interest repayments. However, there are still good deals to be found. The lenders in the table below offer interest-only options.

Be sure to carefully compare rates for interest-only products, because the rates in the table may not be indicative of the interest-only rate.

Compare interest-only home loans

Rates last updated October 15th, 2018
$
Loan purpose
Offset account
Loan type
Your filter criteria do not match any product
Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
4.13%
4.13%
$0
$0 p.a.
80%
This is a competitive interest-only rate product that's also low in fees.
3.89%
4.24%
$0
$0 p.a.
80%
Fix your rate and minimise repayments for 2 years with this interest-only investor mortgage.
3.59%
4.14%
$395
$0 p.a.
80%
A one year fixed rate offer with no ongoing bank fees.
4.04%
3.93%
$0
$0 p.a.
80%
Fix your rate for 1 year and make interest-only payments.
4.43%
4.24%
$0
$0 p.a.
90%
Interest-only loan for investment. Available with a 10% deposit and includes a partial offset account.
3.93%
3.94%
$0
$0 p.a.
80%
A low-fee line of credit loan from an online lender. Unlock the equity in your home and make interest-only repayments with a competitive rate.
3.99%
4.62%
$395
$0 p.a.
80%
Investors can enjoy flexible repayments and an easy application process with this pioneering online lender.
4.14%
3.96%
$0
$0 p.a.
80%
Investors can go from application to full approval in as little as 20 minutes with this innovative online lender.
3.89%
3.94%
$0
$0 p.a.
80%
Pay no application or ongoing fee and borrow up to 80% LVR.
3.74%
4.01%
$395
$0 p.a.
80%
A competitive 3 year fixed rate with no ongoing bank fees.
4.31%
3.95%
$0
$0 p.a.
80%
A variable interest-only loan for investors. Fast application, low fees, optional offset account. 100% online lender.
4.29%
4.31%
$0
$0 p.a.
80%
Investors will pay no application or ongoing fees for this interest-only loan.
4.74%
4.75%
$0
$0 p.a.
90%
A low-fee interest-only loan for investment. You can get this loan with a 10% deposit.
4.18%
4.19%
$0
$0 p.a.
80%
Investors can easily access their equity using BPAY, a debit Master Card or cheque book with this interest-only line of credit.
3.99%
4.44%
$395
$0 p.a.
80%
Pay no ongoing fees on this investment loan fixed for 3 years.
4.24%
4.00%
$0
$0 p.a.
80%
Buy an investment property and enjoy the certainty of a 3-year fixed rate with interest-only payments.
4.73%
4.41%
$0
$0 p.a.
90%
A basic package loan with a competitive rate and no ongoing fees.
4.90%
4.31%
$0
$0 p.a.
80%
Lock in a fixed rate for 5 years and make interest-only payments with this investment loan.

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