Home News Interest-only loans

Interest-only loans

Font size :
Nila Sweeney
Q. Can you tell me about interest-only loans and over what period borrowers can simply repay interest, and not the principal amount of a loan?

A. Interest-only loans are popular with investors as they allow them to claim continuing large tax deductions by way of negative gearing. Only paying interest on a loan means that less of the investor’s cashflow is tied up servicing the loans and can be used for other purposes. Some lenders now don’t require any principal repayment for 20 years, although a five-year period is still the most common. Most lenders now also offer loans on which one year’s interest can be paid in advance, thereby allowing the investor to bring forward the tax-deductible interest payments. These loans provide some limited year-to-year flexibility as to the timing of interest deductions, which can lead to a smoother income pattern and lower taxation. Some lenders provide a discount of around 20 basis points on fixed-rate loans on which interest is prepaid.

Often first homebuyers will also seek an initial interest-only period to reduce their cash flow commitments while they’re setting up home. Even though you may be interest-only you’re generally able to make additional partial repayments if you wish without penalty.

Related: Home Loan Calculator

It can be confusing to know whether to get a variable rate or fixed rate mortgage, and what features are important. That's why it's important to not only check the right rates, but make sure that you're getting the right features in your home loan. Get help choosing the right home loan

Mortgage News and Articles

Choosing the right mortgage is hard for many first-home buyers Choosing the right mortgage is hard for many first-home buyers

Many feel overwhelmed by the sheer range of products and interest rates on offer, a new survey reveals Read more

Mortgage applications drop in second quarter Mortgage applications drop in second quarter This marks the “beginning” of a downward trend, says Equifax executive ... Read more

To break monopoly, many smaller lenders could become banks To break monopoly, many smaller lenders could become banks The proposed change could break the Big Four’s monopoly over the mortgage market and help families get cheaper home loan rates ... Read more

Borrowing against the home: A strategy to pay for aged care Borrowing against the home: A strategy to pay for aged care Such debts can generally be divided into long-term and short-term loans ... Read more

More mortgage news and articles

Sponsored Links

Monday, Jul 24, 2017
Top Featured Rates
Top Bank Rates

Get help choosing the right home loan

Whether you're a first homebuyer, looking to refinance, or investing, it's important to have the right loan for your needs. Just fill in a few details below and one of our trusted mortgage advisers will contact you.

A quick & easy way to find the right home loan
  • Purpose of mortgage
  • Household Income
    $
  • How much do you want to borrow?
    $
  • How much deposit do you have?
    $
  • How much is your house worth?
    $
  • How much do you still owe on your mortgage?
    $
  • What type of mortgage do you have?


  • How much is your new home?
    $
  • How much do you want to borrow?
    $
  • How soon do you want a mortgage?
Next
  • First name
  • Last name
  • Where do you live?
  • Phone number

Special Offers

Related Keywords