Need an interest only home loan?

Interest only home loan interest rates start from 2.08%.

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With an interest only home loan you don't repay the money you've borrowed at first. You just pay off the interest on top. This makes your repayments much smaller. But eventually you have to repay the loan in full and your repayments get bigger.
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years
Name Product Interest Rate (p.a.) Comp. Rate (p.a.) Fees Monthly Payment

UBank UHomeLoan Fixed IOHome 1Y Fixed≥ 20% Deposit

UBank UHomeLoan Fixed
2.14%
2.21%
  • App: $0
  • Ongoing: $0 p.a.
$567
A one year fixed rate offer with no ongoing bank fees.

Nano Variable Home Loans IOHome≥ 25% Deposit Refi Only

Nano Variable Home Loans
2.49%
2.17%
  • App: $0
  • Ongoing: $0 p.a.
$594
An interest-only loan for refinancing owner-occupiers with 25% deposits or equity. This loan has no fees.

UBank UHomeLoan Variable Rate IOHome≥ 20% Deposit

UBank UHomeLoan Variable Rate
2.88%
2.46%
  • App: $0
  • Ongoing: $0 p.a.
$624
This is a competitive interest-only rate product that's also low in fees.

Nano Variable Home Loans IOInvestment≥ 25% Deposit Refi Only

Nano Variable Home Loans
2.59%
2.40%
  • App: $0
  • Ongoing: $0 p.a.
$601
This variable investment loan has interest-only repayments and is for refinancers only. Fast online approval. Requires a 25% deposit.

UBank UHomeLoan Variable Rate IOInvestment≥ 20% Deposit

UBank UHomeLoan Variable Rate
2.60%
2.52%
  • App: $0
  • Ongoing: $0 p.a.
$602
Pay interest only repayments with this special offer for investors.

Athena Variable Home Loan IOHome≥ 30% Deposit

Athena Variable Home  Loan
2.84%
2.25%
  • App: $0
  • Ongoing: $0 p.a.
$621
A variable loan with interest-only repayments for owner-occupiers with 30% deposits. This loan has no fees.

UBank UHomeLoan Fixed IOInvestment 5Y Fixed≥ 20% Deposit

UBank UHomeLoan Fixed
3.19%
2.70%
  • App: $0
  • Ongoing: $0 p.a.
$649
Forget about rate rises for 5 years and minimise repayments on your investment mortgage.

loans.com.au Green Home Loan IOHome≥ 10% Deposit

loans.com.au Green Home Loan
2.08%
2.39%
  • App: $0
  • Ongoing: $0 p.a.
$562
Construction Loan: A competitive variable rate loan available for the construction of an energy-efficient home.

UBank UHomeLoan Fixed IOInvestment 1Y Fixed≥ 20% Deposit

UBank UHomeLoan Fixed
2.29%
2.36%
  • App: $0
  • Ongoing: $0 p.a.
$578
Investors can enjoy flexible repayments and an easy application process with this pioneering online lender.

loans.com.au Green Home Loan IOInvestment≥ 10% Deposit

loans.com.au Green Home Loan
2.59%
2.90%
  • App: $0
  • Ongoing: $0 p.a.
$601
Construction Loan: Investors building an energy-efficient property can get a discounted rate on this green investment loan with interest-only repayments.

Athena Variable Home Loan IOInvestment≥ 30% Deposit

Athena Variable Home  Loan
2.49%
2.31%
  • App: $0
  • Ongoing: $0 p.a.
$594
Investors with 30% deposits can get this fee-free variable rate loan. This loan has interest-only repayments.

loans.com.au Green Home Loan IOInvestment≥ 10% Deposit

loans.com.au Green Home Loan
2.59%
2.88%
  • App: $0
  • Ongoing: $0 p.a.
$601
An interest-only investment loan for the purchase of an energy-efficient property. Available with a 10% deposit.
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How interest only loans work

There are 2 parts to any home loan repayment: the principal and the interest.

  • The principal is the money you borrow from the lender. It's also called the loan amount. This is the money you have to repay.
  • The interest is charged by the lender, as a percentage of the money you've borrowed (the principal). This is how your lender makes a profit. The amount of interest charged depends on the loan's interest rate.

Most Australian borrowers choose principal and interest home loans. They borrow money and pay it back, plus interest at the same time.

With an interest only loan you borrow money but you don't pay it back at first. Instead the lender charges interest, which you pay monthly.

But the interest only period doesn't last forever. It usually only applies for 1 to 5 years. And when the loan reverts to principal and interest repayments, you have to repay both the principal and the interest together.

Here's a quick example using 2 home loans that are identical except for the repayments.

Interest only loan repayments end up more expensive over time

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 2 years will cost you $10,051 extra in interest.

In these examples, we can see that 2 years of interest only repayments, while much cheaper initially, end up costing you $10,000 more in the long run.

But this is just a simple hypothetical. In reality, interest only loans have higher interest rates, so you'd pay slightly more. And it's also impossible to accurately calculate loan costs over 30 years because interest rates change over time.

What are the benefits of interest only loans?

There are 2 major reasons borrowers choose interest only home loans even though they cost more in the long run.

Cheaper repayments right now

While principal and interest repayments save you money in the long term, some borrowers need a break right now. In this case, interest only repayments give you some breathing space because repayments are much cheaper. This is helpful if you've lost income or are struggling to make repayments.

It's a short-term strategy, but if you've lost your job or are dealing with unexpected expenses, interest only repayments can be a life-saver.

Tax benefits for investors

If you own an investment property, you're allowed to claim any mortgage interest payments, but not any loan principal payments.

Let's say you have an investment property loan worth $400,000. The interest only repayments are $1,500 per month, while principal and interest repayments are $2,500.

You can only claim the interest part of the payment ($1,500), so you the investor might decide to get an interest only loan to:

  • Pay a lower amount each month
  • Keep your financial obligations low
  • Have a mortgage payment that is fully tax deductible
  • Use the money you're not paying on the loan principal towards another non-tax-deductible debt, like your own personal home loan

Some savvy investors buy a property in a booming market and then hold onto it for just a few years. While the property grows in value, they just pay off the loan interest and use it to reduce their tax bill. They also earn rent, which they might put into an offset account or save elsewhere.

But they never repay the loan. Instead, they stick with interest only repayments and then sell the property for a higher price.

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

What are the risks with these loans?

There's nothing wrong with an interest only loan. You just need to be aware of the potential risks and understand exactly what you're getting yourself into.

  • Higher interest rates. Interest only mortgages usually come with higher interest rates than principal and interest loans. Of course, the repayments are still lower because you're not paying back the loan amount yet.
  • You don't build equity. If your property doesn't grow in value, you won't build any equity in your home if you're not repaying any of the principal. This means from the day you move into the property, you don't own any more of it than the amount you paid for a deposit. You could even end up in negative equity if the property loses value.
  • You pay more interest. You have to repay the loan principal eventually. And by not paying off the principal from day one, you get charged more interest.

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.

Worst case scenario: Interest only loan and falling property prices

Property prices in Australia tend to rise over time, but they can fall. If you have an interest only loan and prices start to fall, you could end up with negative equity.

Imagine you bought an investment property in 2016. For 3 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 be in debt.

This is the worst outcome of having an interest only loan. Most borrowers won't find themselves in this situation, but it's important to understand the possible risks.

How to compare interest only home loans

Every borrower wants the best home loan. Here's what you need to do to find the best interest only home loan for you:

  • Compare and get a low rate loan. Every borrower benefits from a more competitive interest rate because it makes your repayments lower. It's not the only factor you need to focus on, but the best interest only loan for you will have a rate that's lower than most.
  • Find a loan with the right features. What features you need in an interest only loan depend on your goals and strategy. If you have extra cash lying around (or just some savings) you can use a 100% offset account to save on interest charges. But if you're an investor and you have an owner-occupier loan as well, you may want to save your money there instead (because interest on investment loans is tax-deductible). Some borrowers benefit from extra repayments, allowing them to repay their loan faster.
  • Add up the fees. Some loans slug you with monthly fees, which can add up to a few hundred dollars a year. Others come with a hefty one-off application fee while others have no fees at all. So, if you can avoid fees, why not avoid them? Well, if there's a better loan for you with a $200 fee attached, it could still be a more beneficial deal than a worse loan with no fee. Compare the entire loan, not just the fees.

Is it harder to get an interest only home loan?

APRA removed its limits on interest only lending years ago, but lenders are still careful when assessing interest only borrowers.

You can 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 instead of 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 mortgage broker can 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.

Detailed guide to home loan applications

All your interest only questions answered

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    32 Responses

      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

      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 the change in your home loan. 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 on the P&I on your mortgage, you can go ahead and refinance. There are home loan refinancing options you can choose from. 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

      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

      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.

        You may refer to our interest-only investment loans comparison table to compare and view the rates of different lenders. Simply enter the $1,140,000 next to the borrowing about followed by your loan term then press “Calculate”.

        You may then compare each lender based on their interest rate p.a., comp rate p.a, fees, maximum LVR, and your projected monthly repayment. If you like to see the side-by-side comparison between brands, just click the “compare box” below the brand’s logo.

        Please click the name of the lender or the “More info” link to be redirected to our review page and learn more about the lender’s loan offer, rates, and requirements as well as the pros and cons of using their loan service. When you are ready, you may then click on the “Go to site” button and you will be redirected to the lender’s website where you can proceed with the application or get in touch with their representatives for further inquiries you may have.

        Before applying, please ensure that you meet all the eligibility criteria and read through the details of the needed requirements as well as the relevant Product Disclosure Statements/Terms and Conditions when comparing your options before making a decision on whether it is right for you. You can also contact the provider if you have specific questions. Alternatively, you can speak to a mortgage broker who can take your personal circumstance into account and offer you a range of borrowing options.

        Cheers,
        Rench

      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

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