Interest Only Home Loans

An Interest Only home loan means you only repay the monthly interest on the amount borrowed for a set term of one to five years. No repayments are required to reduce the principal amount borrowed, which means the loan balance doesn't reduce.

At the end of the Interest Only period, the loan will change to a 'Principal and Interest' loan and you'll start repaying the amount borrowed, as well as interest on that amount. Your loan repayments will be higher for the remainder of the loan term than they would have been if you had made Principal and Interest repayments from the beginning of the loan, because you will have less time left in the loan term to pay off the principal amount.

When you applied for your Interest Only loan, you would have nominated the period of your Interest Only term. This is usually 1 to 5 years. At the end of your Interest Only term, your loan automatically changes to a variable rate loan with Principal and Interest repayments. As a result, your repayment amount may change and is likely to be higher. But that’s not the end of the story. You do have other options. 

While your loan will automatically revert to a variable rate loan with Principal and Interest repayments, you’re not locked into that. Depending on what is important to you, other potential options could include:

• extending your Interest Only term (subject to assessment and approval)
• switching to a fixed rate term
• automatically reverting to a variable rate with Principal and Interest repayments.
• If you’re not sure whether to switch to a fixed rate or stay on a variable rate, you can even split your home loan so part of it is fixed and the other part is variable.

With all these options, it can be a little confusing to figure out what’s right for you. But don’t worry, we’ll get in touch with you before your Interest Only term expires (around 30 to 60 days prior) with more information about the options you can consider and the steps you’ll need to take.

With Interest Only home loans, you only repay the monthly interest on the amount borrowed for a set term of 1 to 5 years. No repayments are required to reduce the principal amount borrowed, which means the loan balance doesn't reduce.

Principal and Interest home loans repayments include a component that goes towards paying down the principal balance of the loan (the amount you borrowed) and a component that goes towards interest (the cost of borrowing). 

For more information and examples, please visit our Interest Only vs Principal and Interest home loans page.