Interest-only investment loans August 2020

If you’re investing in property, an interest-only investment loan can help you build wealth while minimising costs. If not used correctly it can cost you more in interest repayments.

UBank Home Loan Offer

UBank UHomeLoan - 1 Year Fixed Rate (Investor, IO)

2.44 % p.a.

fixed rate

2.85 % p.a.

comparison rate

UBank Home Loan Offer

Apply for the UBank UHomeLoan - 1 Year Fixed Rate (Investor, IO) and enjoy a home loan with the ability to make extra payments, as well as split facility up to 4 times. You can borrow up to 80% of your home loan value.

• Interest rate of 2.44% p.a.
• Comparison rate of 2.85% p.a.
• Application fee of $395
• Maximum LVR: 80%
• Minimum borrowing: $100,000
• Max borrowing: $2,000,000

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Compare interest-only investment rates

The loans below have interest only repayments. However, the repayment calculation shows principal and interest repayments. Your initial repayments will be lower.

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Name	Product		Interest Rate (p.a.)	Comp Rate^ (p.a.)	Application Fee	Ongoing Fees	Max LVR	Monthly Payment	Short Description
UBank UHomeLoan - 1 Year Fixed Rate (Investor, IO)		UBank UHomeLoan - 1 Year Fixed Rate (Investor, IO)	2.44%	2.85%	$395	$0 p.a.	80%		Investors can enjoy flexible repayments and an easy application process with this pioneering online lender.	Go to site More info	Compare	loading Fetching your data...
Athena Variable Home Loan - Investor, IO		Athena Variable Home Loan - Investor, IO	3.09%	2.99%	$0	$0 p.a.	80%		A competitive interest-only investor rate with no application or ongoing fees. Requires a 20% deposit.	Go to site More info	Compare	loading Fetching your data...
ANZ Fixed Rate Home Loan - 3 Year Fixed (Investor, IO)		ANZ Fixed Rate Home Loan - 3 Year Fixed (Investor, IO)	2.84%	4.50%	$600	$10 monthly ($120 p.a.)	80%		Borrow up to 95% LVR and enjoy a 100% offset account with a low ongoing fee.	Enquire now More info	Compare	loading Fetching your data...
UBank UHomeLoan - 5 Year Fixed Rate (Investor, IO)		UBank UHomeLoan - 5 Year Fixed Rate (Investor, IO)	2.89%	2.89%	$395	$0 p.a.	80%		Forget about rate rises for 5 years and minimise repayments on your investment mortgage.	Go to site More info	Compare	loading Fetching your data...
ING Orange Advantage Loan - $500k to $1M (LVR <80% Investor, IO)		ING Orange Advantage Loan - $500k to $1M (LVR <80% Investor, IO)	3.64%	3.96%	$0	$299 p.a.	80%		Get a rate discount for higher borrowing amounts, and enjoy a 100% offset account.	Enquire now More info	Compare	loading Fetching your data...
ANZ Breakfree Package Home Loan - 3 Year Fixed (Investor, IO)		ANZ Breakfree Package Home Loan - 3 Year Fixed (Investor, IO)	2.69%	4.40%	$0	$395 p.a.	80%		Fix your rate and make interest only payments for 3 years with this investment loan.	Enquire now More info	Compare	loading Fetching your data...
UBank UHomeLoan - 3 Year Fixed Rate (Investor, IO)		UBank UHomeLoan - 3 Year Fixed Rate (Investor, IO)	2.44%	2.78%	$395	$0 p.a.	80%		Pay no ongoing fees on this investment loan fixed for 3 years.	Go to site More info	Compare	loading Fetching your data...
ING Mortgage Simplifier Home Loan - $500,000 to $1M (LVR <=80% Investors, IO)		ING Mortgage Simplifier Home Loan - $500,000 to $1M (LVR <=80% Investors, IO)	3.59%	3.61%	$0	$0 p.a.	80%		Investors can maximise their tax-effectiveness with this interest-only loan.	Enquire now More info	Compare	loading Fetching your data...
Aussie Select Basic Fixed Rate Home Loan - 2 Year Fixed Rate (Investor, IO)		Aussie Select Basic Fixed Rate Home Loan - 2 Year Fixed Rate (Investor, IO)	2.84%	3.64%	$0	$0 p.a.	90%			Enquire now More info	Compare	loading Fetching your data...
UBank UHomeLoan Variable Rate - Investor Extra Offer Investor Interest Only		UBank UHomeLoan Variable Rate - Investor Extra Offer Investor Interest Only	3.29%	3.16%	$0	$0 p.a.	80%		Pay interest only repayments with this special offer for investors.	Go to site More info	Compare	loading Fetching your data...

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What is an interest-only investment loan?

An interest-only investment loan is a mortgage that allows you to repay only the interest portion for a set period, usually up to five years.

This means your monthly repayments start smaller. Why? Because you're not repaying the money you've borrowed (the principal). You're just paying the interest on top.

It saves you money in the short term but will cost you more in the long term because you pay more interest over time.

Read this guide to learn more about how interest only repayments work

If used correctly an interest only investor mortgage can help you minimise your tax and repayments. But you need to be aware of the potential downsides too.

To fund your investment property and repay the loan in full you should look at an investor mortgage with principal and interest repayments.

How can property investors take advantage of these loans?

There are several ways investors can use interest-only investment loans to their advantage:

1. Tax minimisation
2. Negative gearing
3. High capital growth strategy

1. Tax minimisation

Investors usually use interest-only loans to reduce their tax bill because home loan interest is tax deductible for investors. At the end of the year you can deduct all the interest charges you’ve paid for your investment property over that year. Payments on the loan principal, meanwhile, aren’t deductible.

If you’re a property investor using an interest-only home loan you’ll be able to deduct your entire home loan repayment from your taxes.

2. Negative gearing

Interest-only investment home loans can be a particularly effective strategy when you account for negative gearing. Negative gearing is a tax concession that allows you to offset any losses you make on your investment property against your personal income. In other words, if you pay more maintaining your investment property and servicing the debt on it than you bring in from rental income, you can deduct this loss from your personal income.

Typically, this strategy is used to minimise losses on an investment property while you wait for the property to appreciate in value. The idea is to eventually sell the property for a capital gain, while minimising the cost of holding the property in the meantime.

3. High capital growth strategy

Some investors buy property with a high-growth strategy by choosing properties and locations they believe will grow quickly in value. Rather than holding the property for many years, renting it out and paying it off over time, these investors buy the property, try to minimise their repayments for a few years, then sell the property for more than they paid. For this strategy to work, an interest-only investment loan is essential because your repayments are much smaller at first.

This can be a risky strategy. It worked well for many investors when property markets were booming. When markets are down it's a different story.

What are the risks of interest-only loans?

Interest-only loans have a few possible drawbacks:

• With interest-only loans you won’t reduce your debt during the interest-only period. At the end of the interest-only period, you’ll still owe the same amount you borrowed.
• Your repayments rise significantly once your loan reverts to a principal and interest loan. You need to prepare for this in advance.
• Going with an interest-only investment loan means you'll end up paying more over the life of your home loan. Since you won’t be reducing the principal on your home loan, it will likely take longer to pay off your mortgage, increasing the interest you pay in the long run.
• Interest-only home loans can also be risky if your property fails to increase in value. This means when the interest-only period ends, you won’t have equity in your home.

How do I compare interest-only investment loans?

When comparing interest only mortgages for investment, you need to consider these factors:

• Rate. A lower rate means lower repayments. It's one of the fastest ways to compare mortgages.
• Offset account. Having an offset account lets you use additional savings to reduce your interest payments even further. Read this guide to learn more about this strategy.
• Flexibility. A loan with low fees (especially discharge and switching fees) makes it easier to refinance your mortgage when the interest only period ends. And why pay more in fees when you can avoid it?

Use a repayment calculator

Use the calculator below to find out what your repayment will be if you choose an interest-only home loan. Then run the same calculations for principal and interest repayments so you can see what your repayments will be once the interest-only period ends. You’ll need to pay attention to both repayment figures and determine if you’ll be able to service the new repayments once your interest-only period ends.

Need expert help? Contact a mortgage broker