Interest-only home loans

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A guide to interest-only home loans

Updated March 26, 2024
Written by James Hurwood
Reviewed by Stephen Zeller

Interest-only home loans

How do interest-only home loans work? Selling Houses Australia host, Andrew Winter, is here to explain.
Andrew Winter
Home Loans

Farewell paperwork, it's Home Loan Heaven


Why consider an interest-only home loan?

  • They may form part of a potentially effective tax strategy for property investors.
  • An interest-only period can be useful for giving yourself the capacity to focus on other financial priorities.
  • You may be facing a future period of temporarily reduced income (e.g. going on parental leave), in which case making interest-only repayments could be invaluable.

Comparing interest-only home loans

If you’re in the market for an interest-only loan (whether for a residential or investment property), there are a few things you should look out for:

  • The length of the interest-only period. Interest-only periods usually last between 1 and 5 years, but some lenders may offer up to 10 years of interest-only repayments to certain investment home loan customers.
  • Interest rates. You need to be aware of these when shopping for any home loan, not just an interest-only loan. Look out for the advertised interest rate, the revert rate (the interest rate you’ll be charged once the interest-only period ends) and the comparison rate.
  • Features. Check what features come with the loan in question. This could include things like an offset account or repayment flexibility options (i.e. the choice between weekly, fortnightly or monthly repayments).
  • Fees. Look out for application and registration fees, as well as ongoing regular charges and any costs you’d have to pay if you refinanced or otherwise left your current home loan.

You can also speak to a lender or mortgage broker if you’d like some help sifting through home loans and deciding which one’s right for you.

Expert tips for weighing up interest-only home loans

Interest-only home loans can be a useful tool for some, and a potentially risky move for others. To help you potentially get a better idea of which camp you might fall into, our General Manager of Money, Stephen Zeller, has a few tips:

Stephen Zeller
General Manager – Money

They can be helpful for investors

Interest only repayments can be very useful for property investors as part of an investment strategy. Before considering an interest only repayment home loan, discuss your proposed strategy with your accountant or financial planner to see what they think is best for you financially.

You can temporarily switch to interest-only repayments

Interest-only repayments can be applied to owner occupier loans in certain circumstances. These can include scenarios like a homeowner on parental leave and looking to reduce their household expenses for a while, or a customer wanting to construct a new home or complete extensive renovations.

You can still make additional repayments

If your loan’s interest rate is variable, as long as the specific product permits it, you can still make additional repayments towards an interest only loan. Depending on the loan, you may be able to redraw these additional repayments at a later date and offset your current home loan balance. As mentioned above, it’s best to discuss your own individual investment strategy with an accountant or financial advisor to best benefit you financially.

What are interest-only home loans?

How do interest-only home loans work?

Which types of borrowers might benefit from taking out an interest-only loan?

Pros and cons of interest-only home loans

Interest-only versus principal and interest home loans

How do the repayment types compare?

Tips for transitioning from interest-only repayments to principal and interest repayments

Are interest-only home loans more expensive than principal and interest home loans?

Important to know

Do interest-only loans allow for additional repayments?

What happens when my interest-only period ends?

Can I change my principal and interest home loan repayments to interest-only?

Meet our home loans expert, Stephen Zeller

Stephen Zeller
General Manager – Money

Stephen has more than 30 years of experience in the financial services industry and holds a Certificate IV in Finance and Mortgage Broking. He’s also a member of both the Australian and New Zealand Institute of Insurance and Finance (ANZIIF) and the Mortgage and Finance Association of Australia (MFAA).

Stephen leads our team of Home Loan Specialists, and reviews and contributes to Compare the Market’s banking-relating content to ensure it’s as helpful and empowering as possible for our readers.

  1. Australian Taxation Office. Rental expenses you can claim now. February 2023.