Interest only home loan

It is a loan where your repayments cover the interest and none of the principal for an agreed term, so the balance does not reduce during that period. When the term ends the loan reverts to principal and interest over the years that remain, and the repayment steps up.

The same balance is repaid over fewer remaining years, so the increase is larger than most borrowers expect. The exact figure depends on your balance, the rate at the time and how many years are left on the loan. We model it on your numbers before the loan is written.

Some lenders allow it and others restrict interest only to investment lending. Where it is available to owner-occupiers, terms are generally shorter and lenders want a clear reason. Parental leave, a renovation or a defined period of reduced income are the reasons that come up most often.

Often the opposite. Many lenders assess your servicing on the principal and interest repayment over the remaining term rather than the interest-only one, which can reduce your borrowing capacity. It surprises borrowers who assume lower repayments mean a larger loan.

Sometimes, and it is never automatic. An extension is a fresh credit assessment against the lender's current policy, and lenders differ on how many they allow and over what total period. Start the conversation well before the term ends rather than in the month it expires.

It preserves cash flow while a portfolio builds, which is why many investors use it. The trade is that the balance does not reduce and the repayment steps up later. Whether the tax position makes it worthwhile is a question for your accountant rather than for us.

Many lenders allow it, and some restrict it. An offset account attached to the loan is often the more flexible route, because it reduces the interest charged while keeping the money available to you. We check what the specific lender permits before recommending the structure.