Best Interest-Only Home Loan Rates Compared
- See the top interest-only home loan offers, with rates starting from 5.84% p.a.^ (comparison rate).
In our interest-only home loans guide:
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Best interest-only home loans in Australia (variable rates)
The table shows a selection of variable rate interest-only home loans for owner occupiers, sorted by the lowest comparison rate, then the lowest interest rate.
Greater Bank - Great Rate Home Loan | |
|---|---|
| Variable interest rate | 5.84% p.a. |
| Comparison rate^ | 5.84% p.a. |
| Features |
|
| Maximum loan to value ratio (LVR) | 80% |
Qudos Bank - No Frills Home Loan | |
| Variable interest rate | 6.09% p.a. |
| Comparison rate^ | 5.86% p.a. |
| Features |
|
| Maximum loan to value ratio (LVR) | 70% |
Tiimely Home - Variable Home Loan (formerly Tic:Toc) | |
| Variable interest rate | 6.84% p.a. |
| Comparison rate^ | 5.86% p.a. |
| Features |
|
| Maximum loan to value ratio (LVR) | 90% |
Australian Mutual Bank - Special Offer 3-year Discounted Basic Variable Rate | |
| Variable interest rate | 5.49% p.a. |
| Comparison rate^ | 5.86% p.a. |
| Features |
|
| Maximum loan to value ratio (LVR) | 80% |
Newcastle Permanent - Real Deal Interest Only | |
| Variable interest rate | 5.89%p.a. |
| Comparison rate^ | 5.87%p.a. |
| Features |
|
| Maximum loan to value ratio (LVR) | 80% |
Community First Bank - True Basic Variable Home Loan | |
| Variable interest rate | 6.04% p.a. |
| Comparison rate^ | 5.65% p.a. |
| Features |
|
| Maximum loan to value ratio (LVR) | 95% |
Great Southern Bank - Basic Variable Construction Interest Only | |
| Variable interest rate | 5.89% p.a. |
| Comparison rate^ | 5.95% p.a. |
| Features |
|
| Maximum loan to value ratio (LVR) | 70% |
Qudos Bank - No Frills Home Loan | |
| Variable interest rate | 6.19% p.a. |
| Comparison rate^ | 5.96% p.a. |
| Features |
|
| Maximum loan to value ratio (LVR) | 80% |
HSBC - Home Value Loan | |
| Variable interest rate | 6.34% p.a. |
| Comparison rate^ | 5.98% p.a. |
| Features |
|
| Maximum loan to value ratio (LVR) | 80% |
Great Southern Bank - Offset Variable Construction Interest Only | |
| Variable interest rate | 5.94% p.a. |
| Comparison rate^ | 6.00% p.a. |
| Features |
|
| Maximum loan to value ratio (LVR) | 70% |
Easy Street - Street Smart Variable | |
| Variable interest rate | 6.24% p.a. |
| Comparison rate^ | 6.02% p.a. |
| Features |
|
| Maximum loan to value ratio (LVR) | 95% |
The Capricornian - No Frills Home Loan (Construction) | |
| Variable interest rate | 5.99% p.a. |
| Comparison rate^ | 6.03% p.a. |
| Features |
|
| Maximum loan to value ratio (LVR) | 80% |
IMB - Budget Home Lona | |
| Variable interest rate | 6.14% p.a. |
| Comparison rate^ | 6.03% p.a. |
| Features |
|
| Maximum loan to value ratio (LVR) | 95% |
BCU Bank OMG Home Loan | |
| Variable interest rate | 6.64% p.a. |
| Comparison rate^ | 6.04% p.a. |
| Features |
|
| Maximum loan to value ratio (LVR) | 79% |
Qudos Bank - Construction Home Loan | |
| Variable interest rate | From 6.19% p.a. |
| Comparison rate^ | 6.05% p.a. |
| Features |
|
| Maximum loan to value ratio (LVR) | 80% |
Australian Mutual Bank - Basic Variable Rate Home Loan | |
| Variable interest rate | From 5.99% p.a. |
| Comparison rate^ | 6.06% p.a. |
| Features |
|
| Maximum loan to value ratio (LVR) | 95% |
ING - Mortgage Simplifier | |
| Variable interest rate | From 6.34% p.a. |
| Comparison rate^ | 6.07% p.a. |
| Features |
|
| Maximum loan to value ratio (LVR) | 80% |
| Variable interest rate | Comparison rate^ | Features | Maximum loan to value ratio (LVR) | |
|---|---|---|---|---|
Greater Bank - Great Rate Home Loan | 5.84% p.a. | 5.84% p.a. |
| 80% |
Qudos Bank - No Frills Home Loan | 6.09% p.a. | 5.86% p.a. |
| 70% |
Tiimely Home - Variable Home Loan (formerly Tic:Toc) | 6.84% p.a. | 5.86% p.a. |
| 90% |
Australian Mutual Bank - Special Offer 3-year Discounted Basic Variable Rate | 5.49% p.a. | 5.86% p.a. |
| 80% |
Newcastle Permanent - Real Deal Interest Only | 5.89%p.a. | 5.87%p.a. |
| 80% |
Community First Bank - True Basic Variable Home Loan | 6.04% p.a. | 5.65% p.a. |
| 95% |
Great Southern Bank - Basic Variable Construction Interest Only | 5.89% p.a. | 5.95% p.a. |
| 70% |
Qudos Bank - No Frills Home Loan | 6.19% p.a. | 5.96% p.a. |
| 80% |
HSBC - Home Value Loan | 6.34% p.a. | 5.98% p.a. |
| 80% |
Great Southern Bank - Offset Variable Construction Interest Only | 5.94% p.a. | 6.00% p.a. |
| 70% |
Easy Street - Street Smart Variable | 6.24% p.a. | 6.02% p.a. |
| 95% |
The Capricornian - No Frills Home Loan (Construction) | 5.99% p.a. | 6.03% p.a. |
| 80% |
IMB - Budget Home Lona | 6.14% p.a. | 6.03% p.a. |
| 95% |
BCU Bank OMG Home Loan | 6.64% p.a. | 6.04% p.a. |
| 79% |
Qudos Bank - Construction Home Loan | From 6.19% p.a. | 6.05% p.a. |
| 80% |
Australian Mutual Bank - Basic Variable Rate Home Loan | From 5.99% p.a. | 6.06% p.a. |
| 95% |
ING - Mortgage Simplifier | From 6.34% p.a. | 6.07% p.a. |
| 80% |
Best interest-only home loans in Australia (fixed rates)
The table shows a selection of fixed rate interest-only home loans for owner occupiers, sorted by the lowest interest rate, then the lowest comparison rate.
Arab Bank Australia - Fixed Rate Home Loan (1 year) | |
|---|---|
| Interest rate | 5.50% p.a. for 1 year |
| Comparison rate^ | 7.37% p.a. |
| Features |
|
| Maximum loan to value ratio | 60% |
Arab Bank Australia - Fixed Rate Home Loan (2 Year) | |
| Interest rate | 5.80% p.a. for 2 years |
| Comparison rate^ | 7.23% p.a. |
| Features |
|
| Maximum loan to value ratio | 60% |
Queensland Country Bank - Special Fixed Package Rate (1 year) | |
| Interest rate | 5.94% p.a. for 1 year |
| Comparison rate^ | 6.28% p.a. |
| Features |
|
| Maximum loan to value ratio | 80% |
Greater Bank - Great Rate Home Loan Fixed (2 or 3 year) | |
| Interest rate | 5.89% p.a. for 2 or 3 years |
| Comparison rate^ | 7.35% p.a. (2 years); 7.19% p.a. (3 years) |
| Features |
|
| Maximum loan to value ratio | 80% |
Greater Bank - Ultimate Home Loan Fixed (2 or 3 year) | |
| Interest rate | 5.89% p.a. for 2 or 3 years |
| Comparison rate^ | 7.52% p.a. (2 years); 7.38% p.a. (3 years) |
| Features |
|
| Maximum loan to value ratio | 80% |
Community First bank - Accelerator Package Home Loan Fixed (3 year) | |
| Interest rate | 5.99% p.a. for 3 years |
| Comparison rate^ | 6.21% p.a. |
| Features |
|
| Maximum loan to value ratio | 95% |
G&C Mutual Bank - Fixed Rate Home Loan (1 year) | |
| Interest rate | 6.09% p.a. for 1 year |
| Comparison rate^ | 6.14% p.a. |
| Features |
|
| Maximum loan to value ratio | 95% |
Easy Street - Fixed home loan (3 Year) | |
| Interest rate | 6.09% p.a. for 3 years |
| Comparison rate^ | 5.92% p.a. |
| Features |
|
| Maximum loan to value ratio | 95% |
Qudos Bank - Fixed Rate Home Loan (3 year) | |
| Interest rate | 6.09% p.a. for 3 years |
| Comparison rate^ | 6.02% p.a. |
| Features |
|
| Maximum loan to value ratio | 80% |
Greater Bank - Great Rate Home Loan Fixed (4 or 5 year) | |
| Interest rate | 6.09% p.a. for 4 or 5 years |
| Comparison rate^ | 7.12% p.a. (4 years); 7.00% p.a. (5 years) |
| Features |
|
| Maximum loan to value ratio | 95% |
Greater Bank - Ultimate Home Loan Fixed (2 or 3 year) | |
| Interest rate | 6.09% p.a. for 4 or 5 years |
| Comparison rate^ | 7.32% p.a. (4 years); 7.22% p.a. (5 years) |
| Features |
|
| Maximum loan to value ratio | 95% |
BCU Bank - Fixed Rate Home Loan (3 year) | |
| Interest rate | 6.14% p.a. for 3 years |
| Comparison rate^ | 6.04% p.a. |
| Features |
|
| Maximum loan to value ratio | 95% |
Community First bank - Accelerator Package Home Loan Fixed (1 or 2 year) | |
| Interest rate | 6.19% p.a. for 1 or 2 years |
| Comparison rate^ | 6.21% p.a. (1 year); 6.23% p.a. (2 years) |
| Features |
|
| Maximum loan to value ratio | 95% |
Bank of China - Fixed Rate Home Loan (1-3 years) | |
| Interest rate | 6.19% p.a. for 1-3 years |
| Comparison rate^ | 8.10% p.a. (1 year); 7.91% p.a. (2 years); 7.74% p.a. (3 years) |
| Features |
|
| Maximum loan to value ratio | 80% |
G&C Mutual Bank - Fixed Rate Home Loan (2 year) | |
| Interest rate | 6.19% p.a. for 2 years |
| Comparison rate^ | 6.24% p.a. |
| Features |
|
| Maximum loan to value ratio | 95% |
BCU Bank - Fixed Rate Home Loan (2 year) | |
| Interest rate | 6.19% p.a. for 2 years |
| Comparison rate^ | 6.04% p.a. |
| Features |
|
| Maximum loan to value ratio | 95% |
Newcastle Permanent - Premium Plus Package Fixed Rate (2 year) | |
| Interest rate | 6.19%p.a. for 2 years |
| Comparison rate^ | 7.60%p.a. |
| Features |
|
| Maximum loan to value ratio | 80% |
| Interest rate | Comparison rate^ | Features | Maximum loan to value ratio | |
|---|---|---|---|---|
Arab Bank Australia - Fixed Rate Home Loan (1 year) | 5.50% p.a. for 1 year | 7.37% p.a. |
| 60% |
Arab Bank Australia - Fixed Rate Home Loan (2 Year) | 5.80% p.a. for 2 years | 7.23% p.a. |
| 60% |
Queensland Country Bank - Special Fixed Package Rate (1 year) | 5.94% p.a. for 1 year | 6.28% p.a. |
| 80% |
Greater Bank - Great Rate Home Loan Fixed (2 or 3 year) | 5.89% p.a. for 2 or 3 years | 7.35% p.a. (2 years); 7.19% p.a. (3 years) |
| 80% |
Greater Bank - Ultimate Home Loan Fixed (2 or 3 year) | 5.89% p.a. for 2 or 3 years | 7.52% p.a. (2 years); 7.38% p.a. (3 years) |
| 80% |
Community First bank - Accelerator Package Home Loan Fixed (3 year) | 5.99% p.a. for 3 years | 6.21% p.a. |
| 95% |
G&C Mutual Bank - Fixed Rate Home Loan (1 year) | 6.09% p.a. for 1 year | 6.14% p.a. |
| 95% |
Easy Street - Fixed home loan (3 Year) | 6.09% p.a. for 3 years | 5.92% p.a. |
| 95% |
Qudos Bank - Fixed Rate Home Loan (3 year) | 6.09% p.a. for 3 years | 6.02% p.a. |
| 80% |
Greater Bank - Great Rate Home Loan Fixed (4 or 5 year) | 6.09% p.a. for 4 or 5 years | 7.12% p.a. (4 years); 7.00% p.a. (5 years) |
| 95% |
Greater Bank - Ultimate Home Loan Fixed (2 or 3 year) | 6.09% p.a. for 4 or 5 years | 7.32% p.a. (4 years); 7.22% p.a. (5 years) |
| 95% |
BCU Bank - Fixed Rate Home Loan (3 year) | 6.14% p.a. for 3 years | 6.04% p.a. |
| 95% |
Community First bank - Accelerator Package Home Loan Fixed (1 or 2 year) | 6.19% p.a. for 1 or 2 years | 6.21% p.a. (1 year); 6.23% p.a. (2 years) |
| 95% |
Bank of China - Fixed Rate Home Loan (1-3 years) | 6.19% p.a. for 1-3 years | 8.10% p.a. (1 year); 7.91% p.a. (2 years); 7.74% p.a. (3 years) |
| 80% |
G&C Mutual Bank - Fixed Rate Home Loan (2 year) | 6.19% p.a. for 2 years | 6.24% p.a. |
| 95% |
BCU Bank - Fixed Rate Home Loan (2 year) | 6.19% p.a. for 2 years | 6.04% p.a. |
| 95% |
Newcastle Permanent - Premium Plus Package Fixed Rate (2 year) | 6.19%p.a. for 2 years | 7.60%p.a. |
| 80% |
How do interest-only home loans work?
With an interest-only home loan your repayments only go towards paying off the interest charged by the lender on your loan for a set period. You won’t be paying off the home loan itself (the principal) during the interest-only period.
Because of this, repayments on an interest-only home loan will generally be lower than repayments on a comparable principal and interest home loan.
Here are the key aspects to how interest-only home loans work:
- The interest-only period for owner-occupiers is generally limited to a duration of between 1 and 5 years.
- Interest-only periods for investment property loans are generally longer, e.g. up to 10 years.
- The interest-only period is usually at the start of the loan term, but not always.
- It may be possible to split up the interest-only portion of the loan, so you’re not taking it all in one go.
- Some lenders set a maximum duration – e.g. five years – that can be taken consecutively as an interest-only period, even if the overall interest-only allowance is longer.
- At the end of the interest-only period, your home loan will revert back to principal and interest repayments.
Expert tip: Think about your interest-only 'exit strategy'
“If you’re considering an interest-only home loan, you need to know what your plan is for transitioning to principal and interest repayments so you're actually paying down the debt. Depending on your age, staying on interest-only for a long time could mean you still have a big home loan debt as you approach retirement.”
Mansour Soltani, Money.com.au's home loan expert
Interest-only loans versus principal and interest
Interest-only
- You’re not paying down the loan amount.
- Lower repayments during the interest-only period, followed by higher repayments once it ends.
- Generally a higher rate of interest than on principal and interest loans.
- You’ll pay more interest overall.
Principal and interest
- You’re paying off both the loan amount and the interest charged by the lender.
- Repayments stay steady throughout the loan, subject to interest rate changes on variable rate home loans).
- Usually lower interest rates available.
- You’ll pay less interest overall.
Interest-only home loan cost comparison
| Principal & interest home loan | Interest-only home loan (1-year) | Interest-only home loan (5-year) | |
|---|---|---|---|
Loan term | 30 | 30 | 30 |
Loan amount | $600,000 | $600,000 | $600,000 |
Interest rate | 6% | 6% | 6% |
Monthly repayment during interest-only period | $3,597 | $3,000 | $3,000 |
Monthly repayment after interest-only period | $3,597 | $3,642 | $3,866 |
Total interest cost over the life of the loan | $695,029 | $703,426 | $739,743 |
Extra interest paid over the life of the loan | n/a | $8,397 | $44,714 |
Reasons you might choose an interest-only home loan
1
Construction loan
During construction of a new home when costs are high borrowers may benefit from lower repayments until construction is complete.
2
Bridging finance
If you buy a new home before you sell your current one, lower interest-only repayments may temporarily ease the financial burden and impact of property costs.
3
Property investment
Some investors choose interest-only repayments on their investment property home loan to minimise initial costs and free up cash to invest elsewhere. Interest may be a tax-deductible expense for some investors, so paying more interest overall on a loan may be less of a concern.
4
If you need reduced repayments for a period
If your circumstances change and your household’s income decreases (for example, after the birth of a child) interest-only repayments can provide temporary relief.
5
Paying off other debt
If you have other debt with higher interest rates than your home loan, such as credit cards or personal loans, switching to lower interest-only repayments on your home loan can temporarily free up money to repay that debt.
Benefits of interest-only home loans
Lower initial repayments
Free up cash to use elsewhere
Choose your interest-only duration
Available from most lenders
Drawbacks of interest-only home loans
Higher repayments after the interest-only term
Higher interest rates apply
More interest to pay overall
You don’t build equity in your property
Switching from interest-only to principal and interest repayments
One of the biggest risks with interest-only loans is the increase in repayments when the loan reverts to principal and interest at the end of the interest-only period.
In some cases, the repayment amount will increase significantly, which can cause significant financial strain if you’re not prepared for it.
To get ready for your repayment amount to increase after your interest-only period ends you can:
- Make sure you’re aware of when your repayment will increase and by how much when the loan reverts to principal and interest.
- Make room in your budget to accommodate the extra cost a few months in advance of when your repayments switch.
- Save money during the interest-only period, if possible. This can help ease the financial pressure when your loan reverts to principal and interest repayments.
- Talk to your lender and ask for support in advance of the switch to principal and interest repayments if you can’t afford the repayment increase.
- Consider extending your interest-only period if that's an option, or consider refinancing your home loan with another lender if you find a better deal and are eligible.
Applying for an interest-only home loan
Getting approved for an interest-only loan can be more difficult than it is for a principal and interest loan. That’s because interest-only loans are generally considered to be riskier by lenders.
To make your application as strong as possible you can:
- Save more: If it's a first-home buyer loan and you have a large deposit, your bank will view you as less of a risk. Aim for a deposit of at least 20% (80% loan to value ratio).
- Justify your choice: If you have a clear justification for applying for an interest-only loan (e.g. it is just a temporary bridging loan) your lender may look at your application more favourably.
- Apply through a broker: If you’re unsure whether or not your bank will approve your interest-only home loan application, engaging a mortgage broker with experience helping borrowers in your situation may improve your chances.
Interest-only home loans FAQs
What are interest-only home loans?
An interest-only home loan is a loan that only requires you to make interest payments for a fixed period of time. When that period ends, your repayments will revert to principal and interest.
Are interest-only home loans good for property investment?
In some cases, interest-only repayments may be suitable for a property investment home loan. The idea is to minimise property costs (i.e. interest on the investment loan) and to use that money for other investments. There are risks to this strategy, however, and it generally relies on the property increasing in value during the interest-only period.
Investors should always talk to an expert for advice before opting for an interest-only home loan, as they can be risky and very expensive if things don’t work out.
Who offers interest-only home loans?
All of the big four banks (ANZ, NAB, Commbank & Westpac) and most other lenders offer interest-only home loans. That includes non-bank lenders, credit unions, plus non-bank lenders offering low doc and bad credit home loans. You can get an interest-only home loan directly from a lender or through a mortgage broker.
Are interest-only home loans more expensive?
Interest-only home loans tend to come with higher interest rates compared to principal and interest home loans. And while your loan will cost you less in repayments during the interest-only period, you typically pay more interest overall with an interest-only home loan.
How much deposit do I need to apply for an interest-only home loan?
To apply for an interest-only home loan you will usually need a deposit of at least 5% of the property value. Put another way, the minimum loan-to-value ratio is typically 95%.
However, unless you have a deposit of at least 20%, you may need to pay for lender’s mortgage insurance.
Home Loans guides and resources
What's the next step on your property journey? Our home loan guides will help you navigate the road ahead, whether you're buying, building or looking to save on an existing loan.
Written by
Editor
Sean Callery
Reviewed by
Home Loans Expert
Mansour Soltani
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