On this page you can find competitive interest-only mortgages, get more information about these products and find out if they're right for you.
interest-only home loan rates April 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.
Rates last updated April 7th, 2020
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.
Read more about how investors can make use of interest-only mortgages.
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 This is because interest on funds withdrawn from an offset account rather than redrawing from your home loan are tax deductible.
But the risks are obvious.
- 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
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?
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
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.
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
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
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
What is your best investment comparison rate interest only for loan of 1.14 million thanks
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
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
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
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?
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
Can a line of credit account be secured against anything else but a home mortgage, e.g. secured against your super fund?
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
do you have interest only home loans
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.
I’d like to know the best interest rate for interest only loan, for a period of 3 years. Cheers.
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
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?
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