Interest Only Home Loans
Secure Your Interest-Only Home Loan With Moone Ponds’ Most Trusted Mortgage Brokers
An interest-only home loan suits investors wanting to buy rental property, allowing them to pay only interest for 1-5 years, keeping repayments low while the loan balance remains, helping to maximise cash flow. As Melbourne mortgage brokers, we compare interest-only options and model repayments after the period to find the best structured loan to benefit you the most.
What is an Interest Only Home Loan?
An interest only loan is a home loan where your repayments cover only the interest charged, not the amount borrowed, for an agreed period, usually one to five years. During that time your repayments are lower, but the loan balance doesn’t reduce. When the interest only period ends, the loan reverts to principal-and-interest repayments over the remaining term, and repayments rise, both because you start repaying the balance and because there’s less time left to do it. Interest only is a repayment structure, not a separate rate type: it’s available on fixed, variable and split loans, for both investors and owner-occupiers.
Why Investors Choose Interest Only Loans?
Maximise investment cash flow
Interest only is most popular with property investors: minimum repayments are lower, freeing up cash for other investments, renovations, or paying down non-deductible debt first. For many investors, loan interest is also tax-deductible, though whether an interest only structure suits your tax position is a question for your accountant before contracts are signed.
Breathing room when you need it
Owner-occupiers use interest only periods to manage a defined stretch of reduced income or increased expenses: parental leave, study, a renovation, or clearing more expensive debt like credit cards. Lower repayments for a set period can be the difference between coping and struggling, provided there’s a plan for the other side.
Pay down what costs you most
If you hold both a home loan and an investment loan, an interest only structure on the investment side lets you direct every spare dollar at your owner-occupied loan, the debt that isn’t tax-deductible. This debt-prioritisation strategy is common, but the right setup depends on your circumstances.
Keep your loan features
Interest only loans still work like standard mortgages. Depending on the lender and product, you can fix your rate for the interest only term, link an offset account, make extra repayments, and redraw, so choosing interest only doesn’t mean giving up flexibility.
Do you qualify for a Interest only Loan?
Lenders assess interest only applications more carefully than standard loans, because they know your repayments will step up later. Here’s what they generally look for:
Your profile
- Income sufficient to service the loan on principal-and-interest repayments over the reduced remaining term, which is how most lenders test serviceability
- Clean credit history and a demonstrated record of meeting financial commitments
- A clear purpose for the interest only period, such as investment strategy, a defined income change, or debt prioritisation
- Deposit or equity consistent with standard lending, typically 10–20%, with LMI generally applying below a 20% deposit
The property
- Standard residential property: house, unit, townhouse, or apartment
- Investment or owner-occupied; investor interest only lending is more widely available and often more competitively priced
- Satisfactory lender valuation supporting the purchase price or refinance amount
The loan
- Interest only periods of 1-5 years at a time are standard; some lenders allow longer total periods for investors, subject to reassessment
- Available with fixed, variable, or split rates; where the rate is fixed, the fixed term usually needs to match the interest only term
- Rates on interest only repayments typically sit slightly above equivalent principal-and-interest rates
- At the end of the period: revert to principal-and-interest, apply to extend (subject to reassessment), or refinance
How Orange Home Loans Helps You Find the Best Interest Only Home Loan
The interest only decision isn’t just about lower repayments today; it’s about what your loan looks like when the period ends. That’s where structure, lender choice, and forward planning earn their keep. Here’s why borrowers choose Orange Home Loans.
Compare interest only options across our panel
Interest only pricing, maximum periods, and extension policies vary significantly between lenders, and investor pricing differs again from owner-occupier. We compare across our lender panel to find the structure and rate that fit your strategy, not just the first lender that says yes.
Model the step-up before you commit
We show you your repayments during the interest only period and, more importantly, what they become afterwards, so the increase is planned for rather than a shock. If the post-period numbers don’t work, we’ll tell you before you apply.
Local Melbourne expertise
Based in Moonee Ponds and serving investors and homeowners across Greater Melbourne, we offer face-to-face appointments on your schedule and review your loan before the interest only period ends, so the next step is a decision, not a default.
SMSF loans:
Frequently asked questions.
Interest Only Home loans:
Frequently asked questions.
An example of how an interest only home loan works?
With an interest-only loan, you pay less at the start, but much more later. So, for the first 1 to 5 years, your bank payments only cover the interest. You aren’t actually paying off your house debt. When that period ends, you have less time left to pay off the full loan amount, so your payments suddenly jump.
For example, on a $600,000 loan, if you have a 30-year loan at a 6% interest rate with a 5-year interest-only period, your payments will look like this:
Years 1 to 5 (Interest-Only): You pay $3,000 a month. Your loan balance stays stuck at $600,000.
Years 6 to 30 (Principal & Interest): Your payment instantly jumps to $3,866 a month.
What this means: At year 6, you suddenly have to find an extra $866 every month to pay off the same house, because you now only have 25 years left to clear the debt instead of 30.
Why are repayments higher after the interest only period ends?
Two reasons. You begin repaying the loan balance itself, not just the interest, and you’re doing it over a shorter remaining term because the interest only years didn’t reduce the debt. Planning for this step-up is the single most important part of taking an interest only loan, and it’s a calculation we run with you before you apply.
Do interest only loans have higher interest rates?
Usually, yes. Lenders typically price interest only repayments slightly above equivalent principal-and-interest rates. Combined with the fact that your balance doesn’t reduce during the interest only period, you’ll generally pay more interest over the life of the loan. For investors, that extra interest may be tax-deductible, which changes the calculation; ask your accountant.
Why do property investors use interest only loans?
Lower repayments free up cash flow for other investments or for paying down non-deductible debt like an owner-occupied home loan first, and interest on investment loans may be tax-deductible. Interest only is far more common on investment loans than owner-occupied ones for these reasons. Whether the structure suits your tax position is a conversation for your accountant.
Can owner-occupiers get interest only loans?
Yes, though lenders apply extra scrutiny and pricing is often less favourable than for investors. Owner-occupiers typically use interest only for a defined period of reduced income or higher expenses, such as parental leave, study, or a renovation. Lenders will want to see that you can afford the higher repayments once the period ends.
What happens at the end of the interest only period?
The loan automatically reverts to principal-and-interest repayments at the lender’s applicable rate. You’re not locked into that path: you can apply to extend the interest only period (subject to a new assessment), refinance to another lender, or restructure the loan. We contact our clients before the period ends so the decision is made on your terms.
Can I make extra repayments on an interest only loan?
Often, yes. Many variable interest only loans allow extra repayments and redraw, and some lenders offer offset accounts alongside interest only repayments. These features let you reduce the interest you pay while keeping minimum repayments low, a combination investors managing irregular cash flow use deliberately. Availability varies by lender and product, so we confirm before you commit.
Is an interest only loan a good idea?
It depends on why you’re using it and what happens when it ends. For investors with a clear strategy, or households managing a defined income change, it can be a sensible structure.
The risks are something you have to be made aware of: you build no equity through repayments during the period, you pay more interest overall, and repayments step up at the end. If the higher future repayments would strain your budget, principal-and-interest from day one is usually the safer path. We’ll model both with you.
Does Orange Home Loans help with interest only loans in Melbourne?
Yes. We’re a Moonee Ponds-based independent mortgage brokerage helping investors and homeowners structure interest only and principal-and-interest loans across Victoria. Based in Moonee Ponds and serving clients throughout Greater Melbourne, consultations in person or at a time that suits you.