Best interest-only home loans in April 2024

Name	Interest Rate p.a.	Comparison Rate p.a.	Fees	Monthly Payment
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 6.43%	Comparison Rate 6.45%	Fees Application: $0 Ongoing: $0 p.a.	Monthly Payment $943	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
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
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
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

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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!

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.

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

ColinSeptember 2, 2022

We are paying 10% on a 250k interest only loan to a private financier on our rural property. We would like a better cheaper option. Pls contact me with a better solution.

Finder

RebeccaSeptember 10, 2022Finder

Hi Colin,

You can compare lenders listed on this page that offer better rates. It may also be worthwhile consulting a mortgage broker to talk through your specific needs and help match you up to a lender that suits your circumstances.

Kind regards,
Rebecca

Finder

RichardSeptember 7, 2022Finder

Hello Colin,

In a situation like yours, you might need to speak to a local mortgage broker. They can help you find a suitable rural loan if you can’t find anything yourself.

I hope this helps.
Richard

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?

Finder

JeniJune 16, 2019Finder

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

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.

Finder

MayDecember 21, 2018Finder

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

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

Finder

JoshuaSeptember 30, 2018Finder

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

MarcSeptember 18, 2017

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

Finder

RenchSeptember 20, 2017Finder

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

Compare interest-only home loans

Interest-only home loans reduce your mortgage repayments early on, but you will pay the interest back later.

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