Interest-only home loans

Interest only loan repayments start lower because you just pay off the interest. You pay more interest in the long run, but for the right borrower it can be a good option.

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Interest only home loans allow you to minimise your loan repayments early on in exchange for higher repayments later. They're a popular option for savvy investors trying to minimise their costs. But if you don't know what you're doing, this kind of loan can cost you more in the long run.

On this page you can find competitive interest only home loans, get more information about these products and find out if they're right for you.

Interest-only home loan rates October 2020

You can sort the mortgages in the table below by lowest interest rate, LVR or fees. Click "Advanced search" to see just investor loans or just owner occupier loans. The loans below have interest-only repayments. However, the repayment calculation shows principal and interest repayments. Your initial repayments will be lower.

Data indicated here is updated regularly
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Loan purpose
Offset account
Loan type
Repayment type
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Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
UBank UHomeLoan Variable Rate - The Real Reward Offer Owner Occupier Interest Only
3.03%
2.70%
$0
$0 p.a.
80%
This is a competitive interest-only rate product that's also low in fees.
ANZ Breakfree Package Home Loan - 1 Year Fixed (Investor, IO)
2.79%
4.72%
$0
$395 p.a.
80%
UBank UHomeLoan - 3 Year Fixed Rate (Investor, IO)
2.44%
2.78%
$395
$0 p.a.
80%
Pay no ongoing fees on this investment loan fixed for 3 years.
homeloans.com.au Low Rate Home Loan with Offset - LVR 60% to 80% (Investment, IO)
2.84%
2.67%
$0
$0 p.a.
80%
A competitive rate with no application or ongoing fee. This loan is not available for construction.
ANZ Breakfree Package Home Loan - 3 Year Fixed (Investor, IO)
2.69%
4.40%
$0
$395 p.a.
80%
Fix your rate and make interest only payments for 3 years with this investment loan.
Athena Variable Home Loan - Owner Occupier, IO
2.99%
2.59%
$0
$0 p.a.
80%
Owner occupiers can refinance to one of the most competitive interest-only rates in the market. No application fee and no ongoing fees.
UBank UHomeLoan - 1 Year Fixed Rate (Owner Occupier, IO)
2.29%
2.47%
$395
$0 p.a.
80%
A one year fixed rate offer with no ongoing bank fees.
Aussie Select Basic Fixed Rate Home Loan - 2 Year Fixed Rate (Investor, IO)
2.84%
3.68%
$0
$0 p.a.
90%
UBank UHomeLoan - 1 Year Fixed Rate (Investor, IO)
2.44%
2.85%
$395
$0 p.a.
80%
Investors can enjoy flexible repayments and an easy application process with this pioneering online lender.
ING Mortgage Simplifier Home Loan - $1M+ (LVR ≤ 80% Owner Occupier, IO)
3.50%
3.52%
$0
$0 p.a.
80%
This basic loan offers a discount for borrowing more than $1 million
UBank UHomeLoan - 3 Year Fixed Rate (Owner Occupier, IO)
2.29%
2.44%
$395
$0 p.a.
80%
A competitive 3 year fixed rate with no ongoing bank fees.
ING Orange Advantage Loan - $150k to $500k (LVR ≤ 80% Owner Occupier, IO)
3.59%
3.91%
$0
$299 p.a.
80%
Get a 100% offset account, access to a redraw facility and a competitive rate tied to your LVR.
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How interest-only loans work

Most mortgages are principal and interest loans. You borrow money and repay it, plus interest. The money you borrow is called the principal.

But with an interest-only loan you just repay the interest on top, not the money you've borrowed. At first. When the loan reverts to principal and interest repayments, you have to repay both the principal and the interest together.

This means interest-only loans start with much lower repayments. But over time they cost you more because you have to pay more interest.

They can be risky because the principal is the main part of the loan. If you're not repaying the principal, you're not really owning more of your home. You're essentially borrowing money without actually paying it back (until you start paying off the principal).

Let's compare two otherwise identical loans, one with principal and interest payments, the other with interest only repayments for the first two years.

Interest only versus principal and interest repayments

DetailsPrincipal and interestInterest only
Loan amount$500,000$500,000
Loan term30 years30 years
Interest rate2.70%2.70%
Interest-only periodN/A2 years
Monthly repayments$2,027$1,125 (during interest-only period)
$2,122 (after interest-only period)
Total loan cost over 30 years$730,075$740,126
Difference in cost$10,051 cheaper$10,051 more expensive

In the scenarios above opting for interest-only repayments for two years will cost you $10,051 extra in interest.

What are the risks and benefits of interest-only home loans?

  • Lower repayments. interest-only loans are cheaper at first. If you're struggling to make repayments this loan type can help, for a while. But in the long run they won't.
  • High-growth investment. Property investors in booming markets often use interest-only loans. They buy a property, make small interest-only payments and watch the property grow in value. Then they sell it for a big profit. They never need to repay the loan.
  • Tax savings. If you're an investor, your repayments may be tax-deductible, particularly if you use a 100% offset account. This is because interest on funds withdrawn from an offset account rather than redrawing from your home loan are tax deductible.

Read more about how investors can make use of interest-only mortgages.

But the risks of interest only loans can't be ignored:

  • No equity. If your property doesn't grow in value you don't much of it if you're not repaying the principal. You could end up in negative equity.
  • Revert. Repayments will jump up when the loan reverts to principal and interest.
  • Higher interest rates. These mortgages usually come with higher interest rates.

For the well-informed, well-organised borrower an interest-only loan can work well. But if you don't know what you're doing it can get messy.

Learn more about the pros and cons of interest-only loans

The interest-only trap

Imagine you bought an investment property in 2016. For three years you made interest-only repayments. You had trouble renting it out, but you were waiting for the property to grow in value.

But the market slowed and your property lost value. Then your loan reverted to principal and interest.

Now your repayments are much higher and your property is worth less. You haven't paid off any of your loan and if you sell you'll still in debt.

This is the interest-only nightmare scenario.

Is it harder to get an interest-only home loan now?

APRA's limits on interest-only lending have been lifted, but lenders are still careful when assessing interest-only borrowers.

Maximise the chances of getting your application approved by:

  • Saving a bigger deposit. Many banks are more willing to consider an interest-only home loan if you have a lower loan-to-value ratio (LVR). A bigger deposit, usually at least 20%, will make you a more attractive borrower. Check out our detailed guide to saving a home loan deposit.
  • Making a plan. Lenders will want to know why you want an interest-only home loan versus a principal and interest loan. If you can explain your justification for the loan and demonstrate your investment plans, you'll be in a much better position.
  • Talk to a mortgage broker. A broker's job is to help you find a loan that suits your needs and financial situation. The broker vets your application before the lender does, maximising your chances of approval. Get in touch with a broker today.

Detailed guide to home loan applications and paperwork

Interest only infographic

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Home Loan Offers

Important Information*
Logo for Westpac Flexi First Option Home Loan - Basic Variable Rate (Owner Occupier, P&I)
Westpac Flexi First Option Home Loan - Basic Variable Rate (Owner Occupier, P&I)

Up to $3,000 refinance cashback. A flexible and competitive variable rate loan. Eligible borrowers refinancing $250,000 or more can get $2,000 cashback per property plus a bonus $1,000 for their first application. Other conditions apply.

Logo for St.George Basic Home Loan - LVR 60% to 80% (Owner Occupier, P&I)
St.George Basic Home Loan - LVR 60% to 80% (Owner Occupier, P&I)

Up to $4,000 refinance cashback. A competitive variable rate loan from St.George. Refinancers borrowing $250,000 or more can get $4,000 cashback (Other terms, conditions and exclusions apply).

Logo for Athena Liberate Home Loan - 70% to 80% LVR Owner Occupier, P&I
Athena Liberate Home Loan - 70% to 80% LVR Owner Occupier, P&I

A competitive variable rate mortgage for owner occupiers $0 application and $0 ongoing fees. This interest rate falls over time as you pay off the loan.

Logo for UBank UHomeLoan Variable Rate - Discount Offer for Owner Occupiers, Variable P&I Rate
UBank UHomeLoan Variable Rate - Discount Offer for Owner Occupiers, Variable P&I Rate

Take advantage of a low-fee mortgage with a special interest rate of just 2.49% p.a. and a 2.49% p.a. comparison rate.

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32 Responses

  1. Default Gravatar
    AlanJune 15, 2019

    How likely is it that our lender would consider interest only on our mortgage which is 5.4% interest and we are finding it difficult to pay the high repayments and/or reduce the rate to a more reasonable rate? Would a mortgage moratorium be useful to us as we will need some breathing space before we sell if rates could not be negotiated down?

    • Avatarfinder Customer Care
      JeniJune 16, 2019Staff

      Hi Alan,

      Thank you for getting in touch with Finder.

      Since the moratorium is a grace period of sorts after the loan amount has been disbursed to the borrower, I suggest that you discuss your possible options with your current lender. Now, if you’re unhappy with what they’ve provided, please seek help from a mortgage broker for your other options.

      I hope this helps.

      Thank you and have a wonderful day!

      Cheers,
      Jeni

  2. Default Gravatar
    samuelDecember 21, 2018

    I have a interest only loan on an investment property. The bank wants now to revert to interest and principle. This doesn’t suit me. I would like to refinance to an interest only loan with an off-set account or redraw facility.

    • Avatarfinder Customer Care
      MayDecember 21, 2018Staff

      Hi Samuel,

      Thanks for getting in touch.

      I’m sorry to hear about this change on your home loan. Well, if the principal and interest type of loan does not suit you, best to communicate this with your lender so they can offer other options for you. In case they will insist the P&I on your mortgage, you can go ahead and refinance. There are home loan refinancing options on this page where you can compare. Brands listed on the page also offer P&I, but of course, you can contact the lender first to discuss your option for interest only with offset and redraw facility.

      Alternatively, best to speak to a mortgage broker who can consider your circumstance and offer you a wide range of refinancing options.

      Hope this has helped.

      Cheers,
      May

  3. Default Gravatar
    MarishaSeptember 28, 2018

    i want interest only as later lookin at selling and buying retirement villa house worth 750 or so hsve 150 mortgage 1 credit card maxed to 2thousamd and 1 6 tjousand who can help me find interest only home loan in wa

    • Avatarfinder Customer Care
      JoshuaSeptember 30, 2018Staff

      Hi Marisha,

      Thanks for getting in touch with finder. I hope all is well with you. :)

      We do have a list of interest-only home loans on this page. Check the table above and compare your options. Once you found the right for you, click on the “Go to site” green button. Please review the criteria, details of the loan product, and its conditions, then contact the lender directly to discuss your loan options and eligibility. These providers should be able to help you even if you live in WA.

      I hope this helps. Should you have further questions, please don’t hesitate to reach us out again.

      Have a wonderful day!

      Cheers,
      Joshua

  4. Default Gravatar
    MarcSeptember 18, 2017

    What is your best investment comparison rate interest only for loan of 1.14 million thanks

    • Avatarfinder Customer Care
      RenchSeptember 20, 2017Staff

      Hi Marc,

      Thanks for your inquiry. Please note that we are not affiliated with any company we feature on our site and so we can only offer you general advice.

      Unfortunately, we can’t actually recommend a specific provider or say what is best. You can also have a look on this page to compare your options and see more info.

      Cheers,
      Rench

  5. Default Gravatar
    MichaelMay 29, 2017

    1) Can i get 5 years interest only loans for construction of house & Land packages for Residential homes for investment purposes.
    2) Also what is the best rate for this type of loan

    • Avatarfinder Customer Care
      DeeMay 30, 2017Staff

      Hi Michael,

      Thanks for your question.

      Interest-only periods generally last for 5 years and you can use them for owner-occupier of investment purposes.

      In the above page, the lowest comparison rate that I can see is 3.72%. Kindly note that the comparison rate takes into account some of the fees and charges of a home loan to give you a more accurate representation of a loan’s interest rate once the costs are taken into account.

      If you need assistance in finding the best option for your situation, you may also get in touch with a mortgage broker by filling out our online form above.

      Cheers,
      Anndy

  6. Default Gravatar
    tomApril 2, 2017

    With interest only loans, can you make lump sum payment (for example if you inherited some money) into the loan to reduce the monthly interest payments or do the interest only payments relate to the loan amount for a fixed term?

    • Avatarfinder Customer Care
      MayApril 2, 2017Staff

      Hi Tom,

      Thank you for your question and for contacting finder.com.au – we are a financial comparison website and general information service we are not mortgage specialists so can only offer general advice.

      That would depend on the lender you go with and the term of payments you have with them. So it’s best that you contact the lender directly to confirm if you can make a lump sum payment and how they would treat such payment.

      Cheers,
      May

  7. Default Gravatar
    LyndaJune 15, 2015

    Can a line of credit account be secured against anything else but a home mortgage, e.g. secured against your super fund?

    • Default Gravatar
      JodieJune 15, 2015

      Hi Lynda,

      Thank you for contacting finder.com.au, a financial comparison website.

      There are line of credit loans available as a personal loan rather than a home loan, please visit this page to find out more, in terms of home loans it would be best to speak to a lender directly as they each have their own lending criteria.

      There is a selection of line of credit home loans available from different lenders that you can contact to discuss your needs.

      Regards
      Jodie

  8. Default Gravatar
    rosemaryMay 14, 2015

    do you have interest only home loans

    • Avatarfinder Customer Care
      MarcMay 14, 2015Staff

      Hi Rosemary,
      thanks for the question.

      This page compares a range of interest only home loans which you can enquire with the lender directly for more information.

      Cheers,
      Marc.

  9. Default Gravatar
    AntonioMay 7, 2015

    I’d like to know the best interest rate for interest only loan, for a period of 3 years. Cheers.

    • Default Gravatar
      JodieMay 12, 2015

      Hi Antonio,

      Thank you for your question.

      You have come through to finder.com.au, a financial comparison website, please use the above table with your loan details to see what current interest rates are offered for a 3 year fixed rate loan of the amount you are wanting to borrow.

      Regards
      Jodie

  10. Default Gravatar
    ClaireApril 28, 2015

    If I have an interest only fixed rate loan and make a manual payment into it, will my next interest payment factor in this manual payment?

    Ie. Say in month one my IO payment is approx $800
    In month four I make a manual payment of $500. Will my next IO payment be approx $300 or approx $800?

    • Avatarfinder Customer Care
      BelindaMay 20, 2015Staff

      Hi Claire,

      Thanks for your enquiry.

      As finder.com.au is an online comparison service, we cannot comment on the value of your interest-only payments.

      It would be best to contact your lender directly.

      Thanks,
      Belinda

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