Compare interest-only mortgages for investors and home buyers and read more about how these home loans work.
It's true that lenders are getting stricter about giving interest-only loans to borrowers. But there are still plenty of competitive offers on the market, and interest only loans are still a great option for the right kind of borrower. For investors, an interest-only loan can maximise your investment returns and reduce your repayments in the short term. For home buyers, they can give you some breathing space early in your loan, although it costs you more in the long run.
UBank UHomeLoan Variable Rate
A competitive interest-only rate with no application fee and ongoing fee.
- Interest rate of 4.13% p.a.
- Comparison rate of 4.13% p.a.
- Application fee of $0
- Maximum LVR: 80%
- Minimum borrowing: $100,000
- Max borrowing: $2,000,000
Use the table below to start comparing interest-only home loans
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How can this page help?
Interest-only loans differ from standard home loans in the way they're repaid. Traditional principal and interest home loans have repayments that include both the interest and a small proportion of the principal. Interest-only home loans, on the other hand, repay only the interest portion of the loan for a fixed period, usually up to five years. While you make interest-only repayments you won't be reducing the principal, but you will reduce the size of your monthly repayment.
Banks can be slightly warier of interest-only borrowers, but there are some things you can do to help your chances:
- Have 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.
- Have 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.
- Consider a non-bank lender. Non-bank lenders are unique in that they raise funds through wholesale markets rather than customer deposits. Because of this, they're not held to the same capital requirements as banks. While non-banks are regulated and have to abide by responsible lending obligations, they're not restricted by the same concrete speed limit on interest-only lending.
Many investors use interest-only loans because interest payments on an investment home loan are tax deductible. Investors choose interest-only home loans to minimise their monthly repayments while maximising cash flow and tax effectiveness. The risk with this strategy is that if property prices fall you can end up in negative equity.
What if I'm an owner-occupier?
Interest-only home loans may not be a great option for owner-occupiers. Most owner-occupiers who choose the products do so to minimise their monthly repayments. This is why banks are very hesitant to agree to an interest-only home loan for an owner-occupier. If you can't afford to make principal and interest repayments on your home loan, it's likely that you've borrowed more than you can afford.
One of the main dangers of owner-occupiers using an interest-only home loan is that the repayments can rise dramatically when the loan reverts to principal and interest. In the meantime, you won't be making headway on paying down your debt. Owner-occupiers should think very carefully before choosing these products.
- Lower repayments. With an interest-only mortgage, you'll have lower repayments compared to a comparable principal and interest 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.
- Need to refinance. Interest-only periods generally last about 5 years, after which you might have to refinance to another lender if you wish to continue making interest-only payments
- Market risk. There can be higher risk than principal and interest loans as you're not building equity in the property, meaning if property values decrease you could end up owing more than your property is worth.
There's no one best interest-only home loan, but there are different ways to find out if a home loan is the right one for you. You should compare interest-only home loans on:
- Fees. You might be looking for an interest-only home loan with low upfront and ongoing fees.
- Interest rates. Interest rates are slightly more important when comparing interest-only home loans as there's no principal repayment, meaning the full amount of your interest repayments will rely on the interest rate you're paying.
- Features. Many borrowers opting for interest-only home loans also opt for 100% offset accounts, as they can be used to realise tax savings. Other features, such as the ability to make extra repayments, bring your loan with you to a new property, or split your loan into fixed and variable portions might be important.