Home loan interest-only rates

Revisit this page frequently or bookmark it to stay informed on home loan interest-only rates. The table below displays the rates as of [date] and may change at any time. 

Home loan interest-only rates: 

Home loan interest-only rates FAQs 

How does an interest-only home loan work? 

An interest-only home loan allows borrowers to pay only the interest on the loan for a specified period. This period is typically up to five years for owner-occupiers and longer for investors.  

During this time, you do not pay down the principal. After the interest-only period ends, the loan reverts to principal and interest repayments, which are generally higher. 

Key features of interest-only home loans 

• interest payments only: you just pay the interest charges on your home loan during the interest-only term 
• no principal reduction: the principal amount of the loan remains unchanged during the interest-only period 
• reverts to principal and interest: once the interest-only term ends, repayments switch to covering both interest and principal, increasing the monthly payment amount 

This is different from principal and interest loan repayments, where you pay both the loan principal and interest, or the loan balance. 

Who might benefit 

• property investors: prefer interest-only loans to maintain low costs and leverage tax-deductible interest expenses 
• owner-occupiers: might go for interest-only loans to free up cash for other needs, such as during home construction or significant life changes like temporary income reductions 

Typical uses 

• construction loans: lower repayments during the costly construction phase until the home is complete 
• bridging finance: eases the financial burden if buying a new home before selling the current one 
• debt management: frees up funds to pay off higher interest debts like credit cards more quickly 

To learn more about the best home loan interest-only rates Australia has to offer, compare home loans among various lenders or talk to your mortgage adviser. 

Interest-only mortgages can offer financial relief and flexibility. Once the interest-only period ends, repayments increase significantly. Evaluating your long-term financial plan is essential to determine if a home loan interest-only rates structure suits your needs. 

Can I switch my mortgage to interest-only? 

Yes, switching your mortgage to interest-only is possible, subject to the provider’s criteria. Here's what you need to know: 

Eligibility 

• lender criteria: providers assess your financial stability and repayment plan for the principal 
• financial evidence: proof of income, liabilities, and expenses might be required 
• loan to value ratio (LVR): ensure you meet the lender's minimum equity requirements 

Key considerations 

• repayment term: interest-only periods are temporary, typically up to five years for owner-occupied loans, or ten years for investment loans 
• post-interest-only period: once the interest-only period ends, your repayments will switch to principal and interest, increasing your monthly payments 

Process 

• eligibility assessment: lenders will evaluate your ability to afford increased repayments post-interest-only period 
• application: you may need to provide financial documents and complete an application 
• approval: lender’s approval is subject to their credit policy and other standards 

How to apply 

• consult your lender: speak with your lender or mortgage broker to discuss your options and start the application process 
• documentation: be prepared to submit financial evidence and meet specific eligibility criteria 

Switching to home loan interest-only rates can provide short-term payment relief, but you should be aware of the long-term financial impact. Ensure you meet the lender’s requirements and have a clear repayment strategy for the loan's principal. 

Is it wise to get an interest-only mortgage? 

Depending on your financial circumstances and objectives, home loan interest-only rates can be beneficial. Here are some of the advantages: 

Benefits of home loan interest-only rates 

• lower initial repayments: during the interest-only period, monthly repayments are lower since you just pay interest 
• increased cash flow: more cash available for other expenses or investments 
• short-term needs: suitable for short-term loans like bridging finance or construction loans 
• investment property advantages: potentially higher tax deductions on investment properties 
• financial flexibility: useful for managing temporary income reductions or increased expenses 

Points to consider 

• interest-only period limit: maximum of five years for owner-occupied loans and ten years for investment loans 
• loan balance: principal remains unchanged during the interest-only period, resulting in paying more interest overall 

Additional information 

• fixed rate option: some interest-only home loans come with a fixed interest rate. This keeps the rate the same during the fixed period, but it may change after this period ends 
• selling your home: selling during the interest-only period is possible, but low equity can make it challenging and may incur break costs, especially on fixed rate loans 
• extra repayments: making extra home loan repayments is possible depending on the loan terms, particularly with variable rate loans 
• variable rates: interest rates can change with variable rate loans, even during the interest-only period, affecting your repayments 

What are the pitfalls of interest-only mortgages? 

Interest-only mortgages come with several risks that potential borrowers should consider: 

• higher interest costs: home loan interest-only rates can be higher than principal and interest loans. This results in higher costs over the loan's life 
• no principal reduction: during the interest-only period, your principal amount doesn’t decrease. This means you are not building equity in your property 
• increased repayments later: after the interest-only period ends, your monthly repayments will increase. This can be unaffordable for some borrowers 
• market risk: if your property doesn’t increase in value, you won’t build equity. This can be risky if the market declines or your circumstances change 
• equity building: equity builds at a slower pace since you're not reducing the loan balance. This can affect your financial condition if you need to sell the property 

To mitigate these risks, borrowers should: 

• consult lenders: discuss options with your lender if you are concerned about affording new repayments after the interest-only period 
• repayment planning: use a home loan interest-only rates calculator to estimate your repayments after the interest-only period to ensure you can manage the increased payments 

Careful consideration of these factors can help you get the safest and cheapest home loan interest-only rates that Australia provides. 

Deciding to go for interest-only mortgages requires diligent research and planning. Always consult with financial experts to tailor the best approach for your unique situation.