Best interest-only home loans in June 2024

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1 - 10 of 10

Name	Interest Rate p.a.	Comparison Rate p.a.	Fees	Monthly Payment
Easy Street Smart Variable Home Loan Interest only5% min. depositOwner-occupierOffset account	Interest Rate 6.49%	Comparison Rate 6.27%	Fees Application: $500 Ongoing: $0 p.a.	Monthly Payment $948	Compare
Tiimely Own Investor Interest Only Variable Rate Home Loan 5Y Interest only10% min. depositInvestment	Interest Rate 6.54%	Comparison Rate 6.40%	Fees Application: $0 Ongoing: $0 p.a.	Monthly Payment $953	Compare
Westpac Flexi First Option Home Loan Interest only20% min. depositInvestment	Interest Rate 7.34%	Comparison Rate 7.66%	Fees Application: $0 Ongoing: $0 per month	Monthly Payment $1,034	Compare
St.George Basic Variable Rate Home Loan Interest only10% min. depositInvestment	Interest Rate 7.29%	Comparison Rate 7.30%	Fees Application: $0 Ongoing: $0 p.a.	Monthly Payment $1,029	Compare
Athena Power Up Variable Home Loan Interest only40% min. depositInvestmentOffset account	Interest Rate 6.69%	Comparison Rate 6.59%	Fees Application: $0 Ongoing: $0 p.a.	Monthly Payment $968	Compare
Gateway Bank Low Rate Essentials Variable Rate Home Loan Interest only20% min. depositInvestment	Interest Rate 6.68%	Comparison Rate 6.70%	Fees Application: $0 Ongoing: $0 p.a.	Monthly Payment $967	Compare
Athena Straight Up Variable Home Loan Interest only30% min. depositInvestment	Interest Rate 6.59%	Comparison Rate 6.48%	Fees Application: $0 Ongoing: $0 p.a.	Monthly Payment $958	Compare
Aussie Select Basic Variable Interest only20% min. depositInvestment	Interest Rate 6.49%	Comparison Rate 6.50%	Fees Application: $0 Ongoing: $0 p.a.	Monthly Payment $948	Compare
Bank Australia Basic Variable Home Loan Interest only40% min. depositInvestment	Interest Rate 6.54%	Comparison Rate 6.47%	Fees Application: $595 Ongoing: $0 p.a.	Monthly Payment $953	Compare
HSBC Home Value Loan Interest only20% min. depositOwner-occupier	Interest Rate 6.59%	Comparison Rate 6.23%	Fees Application: $0 Ongoing: $0 p.a.	Monthly Payment $958	Compare

Showing 10 of 10 results

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What is an interest-only home loan?

With an interest-only home loan, you don't repay the money you've borrowed at first. You just pay the interest charges. This makes your repayments much smaller, but only during the interest-only period.

Most Australians have 30-year home loans. But an interest-only period typically lasts between 1 and 5 years. Then the loan reverts to a principal-and-interest loan.

That's when your repayments get bigger. Now you're paying off the money you've borrowed plus all the interest.

How interest-only loans work

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

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

Principal

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.

Interest

Interest is charged by the lender as a percentage of the money you've borrowed (the principal). The amount of interest charged depends on the loan's interest rate.

But by choosing an interest-only period, you can temporarily delay repaying the principal. But your lender will charge you more for this. You'll have a higher interest rate and your repayments will increase once you're back on principal-and-interest repayments.

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

Interest-only loans end up more expensive over time

Details	Principal-and-interest	Interest-only
Loan amount	$600,000	$600,000
Loan term	30 years	30 years
Interest rate	6%	6%
Interest-only period	N/A	2 years
Monthly repayments	$3,598	$3,000 (during interest-only period) $3,691 (after interest-only period)
Total loan cost over 30 years	$1,295,030	$1,312,091
Difference in cost	$17,061 cheaper	$17,061 more expensive

In the scenarios above, opting for interest-only repayments for 2 years will cost you $17,061 extra in interest.

But this is just a simple hypothetical. In reality, interest-only loans have higher interest rates, so you'd likely pay slightly more.

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.

You get 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.

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 lifesaver.

Investors get tax benefits

Interest-only investment loans are popular with property investors. If you own an investment property, you're allowed to claim any mortgage interest payments as tax deductions. You can't claim any payments off the principal (and homeowners can't claim anything).

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 might decide to get an interest-only loan to do the following:

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.

Interest-only investing in a booming market

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.

This doesn't work when property prices aren't growing fast and is obviously a pretty risky investment strategy.

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.

Interest-only repayments cost you more

Delaying the repayment of money you've borrowed winds up costing you more. By not paying off the loan principal from day one, you get charged more interest over the life of the loan.

Interest-only loans also have higher rates than principal-and-interest loans.

Interest-only rate update: April 2024

The average variable interest rate with principal-and-interest repayments is:

7.14%

But the average variable interest rate with interest-only repayments is:

7.43%

This is a difference of 38 basis points.

Source: Finder's database, April 2024

You don't build equity with interest-only repayments

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.

Worst case scenario: Interest-only loan and falling property prices

Imagine you bought an investment property in a small mining town. For 3 years, you made interest-only repayments.

You had trouble renting it out because the town's mine closed. And the property market slowed. Your property has actually lost value and there are no interested buyers.

Then your loan reverted to principal-and-interest repayments.

Now your repayments are much higher, but your property is worth less. You haven't paid off any of your loan. You're in a worse position than when you started. 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

Here's what you need to do to find the best interest-only home loan for you:

Compare and get a low rate loan. Interest-only loans have higher rates, so it's very important to find a more competitive mortgage.
Find a loan with the right features. If you have extra cash lying around, 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).
Add up the fees. Be sure to add up the cost of application, settlement and monthly fees. Some lenders charge hundreds of dollars in fees, others almost nothing.

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

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

You can maximise the chances of getting your application approved by doing the following:

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). This means having a 20% deposit or higher.
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 better position.
Talking 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

How can I make sure I manage my interest-only loan?

Borrowers with interest-only loans need to pay careful attention to their home loans. To help you stay on top of your mortgage, you should do the following:

Understand when the interest-only period ends. If you don't know or can't remember, check with your lender. You can prepare for the end of the interest-only period by using a loan repayment calculator and checking how much your repayments will increase with principal-and-interest repayments.
Build up a savings buffer. If you know that your home loan repayments are going to rise when the interest-only period ends, having some extra cash saved up could help you meet the higher repayments.
Review your spending. Taking stock of your monthly income and how much you spend helps you keep on track with your mortgage repayments. It makes it easier to find areas you can cut back on too.

Your interest-only mortgage questions answered

When your loan's interest-only period ends, you start making principal-and-interest repayments. This means the amount you have to repay your lender increases.
When the interest-only period on your loan ends, you should take the following steps:
- Review your loan's interest rate and repayments. Don't get caught out when your interest-only period ends. Make sure you know exactly how much you are paying now. Make sure your loan's rate is not too high.
- If you want to extend the interest-only period, talk to your lender. Just remember that the longer you do this, the more expensive it will be for you.
- Compare rates and consider refinancing your home loan. Look at your loan and see if there are more competitive loans on the market you can switch to.
You can sell your home at any time. But if you've never paid off any of your loan's principal, then you don't actually own much of the property.
You could still sell, but once the loan is paid off, you'd end up with very little money – especially if you had a small deposit to start with.
Once you factor in your real estate agent's commission (around 2%), lenders mortgage insurance and stamp duty on your next place, you could have nothing left at all.
Most interest-only home loans have variable interest rates, but it's possible to get a fixed rate one. With these loans, you know exactly how much your interest-only repayments will be each month during the fixed period.
The downside? Fixed rate loans are typically higher than variable rate loans. And interest-only rates are higher than principal-and-interest rates. So you're looking at a very high interest rate compared to most loans.

Thank you for your feedback!

Written by

Richard Whitten

Richard Whitten is a money editor at Finder, and has been covering home loans, property and personal finance for 6+ years. He has written for Yahoo Finance, Money Magazine and Homely; and has appeared on various radio shows nationwide. He holds a Certificate IV in mortgage broking and finance (RG 206), a Tier 1 Generic Knowledge certification and a Tier 2 General Advice Deposit Products (RG 146) certification. See full profile

More guides on Finder

Compare interest-only investment loan rates
Compare interest only loans for investment. Learn how these loans can help investors minimise their non-tax deductible expenses.
Why you need to know when your interest-only period ends
If you aren’t paying attention to when your interest-only period ends, you could find yourself facing higher repayments or a shorter loan term.

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35 Responses

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

Finder

DeeMay 30, 2017Finder

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

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?

Finder

MayApril 2, 2017Finder

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

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?

JodieJune 15, 2015

Hi Lynda,

Thank you for your question.

There is a line of credit loan available as a personal loan rather than a home loan, 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.

I also recommend getting in touch with a licensed mortgage broker. A broker can help you understand your financial position and they can leverage their panel of networks to find a lender that’s more inclined to review your application.

Regards
Jodie

rosemaryMay 14, 2015

do you have interest only home loans

Finder

MarcMay 14, 2015Finder

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.

AntonioMay 7, 2015

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

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

Compare interest-only home loans