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As at 5 March 2025, the best interest-only rates on a variable home loan of $400k, for a borrower with 80% LVR are:
Interest-only is a type of home loan repayment structure, where a borrower is only required to pay the interest they are charged on their mortgage. This typically results in lower mortgage repayments, as borrowers do not need to pay off the principal (or loan amount), as part of their mortgage repayments.
Interest-only investment loans are a crowd favourite amongst property investors, who aim to purchase a home and sell it for a profit later on, without paying off the principal.
As borrowing money from a bank or lender to purchase a property often involves entrusting large amounts of money, it is expected that a borrower will eventually pay back the money they have borrowed. For this reason, interest-only home loans are usually time-limited to a maximum of 5 years for owner-occupiers, or 10 years for investors.
Also worth understanding, Interest-only home loan rates are typically higher on average than principal & interest rates because of the increased risk the bank takes on by letting you get away with not paying down your home loan.
Once your interest-only period ends, you’ll be switched to principal & interest repayments, and continue to pay interest at your current rate. This might be a good time to refinance.
Interest-only and principal and interest are two home loan repayment types. The main difference comes down to the way mortgage repayments are calculated.
On a principal and interest home loan, you pay off part of the principal, as well as the interest you’ve accrued over the period. Conversely, an interest-only home loan only requires you to repay the interest accrued on your home loan.
Interest-only repayments tend to be much lower than on a principal and interest home loan, due to leaving principal repayments out of the equation. However, this can mean it takes you longer to pay off your home loan.
For more information, read our interest-only vs principal and interest guide.
Interest-only home loans usually have lower repayments, meaning short-term savings. However, over the long term, a principal and interest home loan can save you a significant amount of time and money.
Let’s look at an example of the difference in monthly repayments and total interest paid on a $500,000 home loan over 25 years. The rate for this loan is 7.00% p.a. and the interest-only period lasts 5 years.
| Loan amount (principal) | Monthly repayment during first 5 years | Monthly repayment for next 20 years | Total cost of the loan after 25 years | |
| Principal and interest loan (P&I) | $500,000 | $3,534 | $3,534 | $1,060,169 |
| Interest-only loan (IO) | $500,000 | $2,917 (-$617) | $3,876 (+$342) | $1,105,359 (+$45,190) |
In the example above, an interest-only loan ends up costing the borrower $45,190 more in interest repayments by the end of the loan, despite having cheaper mortgage repayments ($617 less) for the first 5 years.
The main benefit of an interest-only home loan is the lower repayments. Home loan interest is also a tax deduction for property investors.
Drawbacks include the slightly higher, on average, interest-only rates and the possibility of paying more in interest over the life of your loan, due to not paying off the principal amount borrowed sooner.
Due to their low-cost repayments, interest-only investment loans are usually favoured by property investors who prefer to have spare cash handy for other ventures.
Some investors may also prefer an interest-only home loan because they never intend to pay off the loan. Rather, some aim to purchase a property using a loan, pay the minimum amount of repayments to keep their loan, then sell the property for a profit.
But, plenty of owner-occupiers take out interest-only loans for similar reasons, like freeing up cash to pay off credit card debts.
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Yes, offset accounts are available on some interest-only home loans. Learn more about how offset accounts work.
If you’re experiencing financial hardship or you’re looking to reduce the size of the mortgage repayments you’re making on your mortgage, you may have the option of refinancing to interest-only repayments for a fixed period of time (depending on your lender and loan).
This isn’t as easy as clicking a button though, as you’ll likely need to apply online or contact your lender first to get the process started and find out if you’re eligible.
Most lenders will let you make extra repayments on an interest-only home loan. Learn more about how extra repayments can help you pay off your home loan faster.
Usually, the longest interest-only period is 5 years for owner-occupiers and 10 years for investors. However, this may differ, depending on the lender’s policies.
To calculate interest-only repayments, use Mozo’s mortgage repayment calculator. Make sure you click on the ‘Advanced’ tab to reveal the ‘Interest-only’ option.
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I have had many homeloans over my time, and to be honest, Me Bank was my first 'non-traditional' bank (not one of the big 4 or associates)... but from signing up day one I had concerns. Communication is poor with this bank. Staff don't tell you 'everything' and for instance, fee and charges are hidden until sign-on has occurred. When I had questions, I would be referred to other departments, people etc who wouldn't return my calls. Eventually, you just gave up... The disappointing this is their "Members Package".... its $395 a year to have an interest rate comparative to other banks.... or if you don't take this offer, its 2% higher (YES... 2%.... mine was 6.09%, I refused to pay the ridiculous Members fee, and they pushed my homeloan interest rate up to 8.53%... So with that... Im out. DO NOT USE THIS BANK... they are dodgy, misleading, and only in it for the profits (like many others)...
Read full reviewI have had many homeloans over my time, and to be honest, Me Bank was my first 'non-traditional' bank (not one of the big 4 or associates)... but from signing up day one I had concerns. Communication is poor with this bank. Staff don't tell you 'everything' and for instance, fee and charges are hidden until sign-on has occurred. When I had questions, I would be referred to other departments, people etc who wouldn't return my calls. Eventually, you just gave up... The disappointing this is their "Members Package".... its $395 a year to have an interest rate comparative to other banks.... or if you don't take this offer, its 2% higher (YES... 2%.... mine was 6.09%, I refused to pay the ridiculous Members fee, and they pushed my homeloan interest rate up to 8.53%... So with that... Im out. DO NOT USE THIS BANK... they are dodgy, misleading, and only in it for the profits (like many others)...
have a home loan paid out in a 2 0 10 and been very happy with the loan
Read full reviewhave a home loan paid out in a 2 0 10 and been very happy with the loan
Their customer service is good, I always get a swift response and my original loan application was approved within 48 hours. you get an instant alert every time money is deposited in your bank which I find helpful. The online platform can sometimes be a little tricky to access with extra security measures, but this does make you feel like your money is secure. The yearly service fees are quite high.
Read full reviewTheir customer service is good, I always get a swift response and my original loan application was approved within 48 hours. you get an instant alert every time money is deposited in your bank which I find helpful. The online platform can sometimes be a little tricky to access with extra security measures, but this does make you feel like your money is secure. The yearly service fees are quite high.
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