Showing home loans based on a loan of
$
with a deposit of
Advertised Rate

2.44%

Variable

Comparison Rate*

2.27%

Company
Homeloans.com.au
Repayment

$610

monthly

Features
Redraw facility
Offset Account
Borrow up to 60%
Extra Repayments
Interest Only
Owner Occupied
Real Time Rating™

4.56

/ 5
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Advertised Rate

2.54%

Variable

Comparison Rate*

2.37%

Company
Homeloans.com.au
Repayment

$635

monthly

Features
Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied
Real Time Rating™

4.49

/ 5
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Advertised Rate

2.59%

Variable

Comparison Rate*

2.42%

Company
Homeloans.com.au
Repayment

$648

monthly

Features
Redraw facility
Offset Account
Borrow up to 60%
Extra Repayments
Interest Only
Owner Occupied
Real Time Rating™

4.41

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Advertised Rate

2.69%

Variable

Comparison Rate*

2.52%

Company
Homeloans.com.au
Repayment

$673

monthly

Features
Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied
Real Time Rating™

4.23

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Advertised Rate

2.84%

Variable

Comparison Rate*

2.93%

Company
Yard
Repayment

$710

monthly

Features
Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied
Real Time Rating™

3.91

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Advertised Rate

2.79%

Fixed - 3 years

Comparison Rate*

4.46%

Company
CUA
Repayment

$698

monthly

Features
Redraw facility
Offset Account
Borrow up to 90%
Extra Repayments
Interest Only
Owner Occupied
Real Time Rating™

2.56

/ 5
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Advertised Rate

2.44%

Fixed - 2 years

Comparison Rate*

4.51%

Company
ANZ
Repayment

$610

monthly

Features
Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied
Real Time Rating™

1.34

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Learn more about home loans

What are interest-only loans?

Most mortgages are principal-and-interest loans, which require borrowers to simultaneously pay interest and pay down their principal.

However, with interest-only loans, borrowers only pay interest, which means their principal doesn’t get reduced.

For example, imagine you wanted to buy a $440,000 property. You might borrow $350,000 at an interest rate of 5 per cent, with the mortgage spread over 30 years and repayments scheduled for each month.

If you had a principal-and-interest loan, you would have to pay $1,889 per month – $1,468 of that would be interest, while the other $421 would go towards reducing the principal. (So, after one month, your mortgage would be reduced from $350,000 to $349,579. After two months, it would be reduced to $349,158.)

If you had an interest-only loan, you would have to pay just $1,468 per month. This would be nothing but interest, so your outstanding mortgage would remain at $350,000.

Generally, interest-only loans last for a maximum of five years, at which point the loan automatically reverts to a principal-and-interest loan (although some lenders will allow you to extend the interest-only period).

In the example above, you would now be left with 25 years to repay your $350,000 mortgage, which would require monthly repayments of $2,056.

If you did five years of interest-only followed by 25 years of principal-and-interest, your total cost would be $704,920. If you did 30 years of principal-and-interest, your total cost would be $679,995 – a difference of $24,924.

How do interest-only loans work?

Let’s take the example quoted above – a 30-year mortgage worth $350,000 with monthly repayments and an interest rate of 5 per cent.

The table below shows what would happen if the mortgage functioned as a principal-and-interest loan for the entire 30 years.

It also shows what would happen if you went interest-only for five, 10 or 15 of the 30 years, before switching to principal-and-interest for the remainder of the loan term.

Scenario P&I loan IO for 5 years IO for 10 years IO for 15 years
Monthly repayments during interest-only period $1,889 $1,468 $1,468 $1,468
Monthly repayments after interest-only period $1,889 $2,056 $2,320 $2,778
Total repayments made $679,995 $704,920 $732,963 $764,300
Additional interest paid due to the interest-only period $0 $24,924 $52,968 $84,305

What are the pros of interest-only loans?

Clearly, people take out interest-only loans so they can reduce their repayments during the interest-only period.

But the real point of interest-only loans is not so much to save money but to use this money to do something else.

In the example above, you’d be left with an extra $421 in your pocket each month. 

The boxes below show three ways you could use that extra money to your advantage.

Pro #1. Enter the market ahead of schedule

If you were a young first home buyer, you might not be able to afford to buy your hypothetical $440,000 property if you had to pay $1,889 per month. However, you might be able to afford it if you only had to repay $1,468 per month for the first five years.

Sure, you’d have to pay an extra $24,924 over the life of the mortgage. But if you held off entering the market until you had enough money to afford a principal-and-interest loan, your property might end up costing you an extra $30,000 or $40,000.

Also, by the time your mortgage reverts to principal and interest, your salary is likely to be higher, which would hopefully mean that you could now afford the increased repayments.

WARNING: This strategy could backfire if your property doesn’t increase in value during the five-year period or if you can’t afford the higher repayments once it ends.

Pro #2. Buy an investment property ahead of schedule

Imagine that you used an interest-only loan to enter the market ahead of schedule – but this time with an investment property. And imagine the value of this investment increased by 10 per cent during the interest-only period.

In that case, your property’s value would climb from $440,000 to $484,000 – so you’d pay an extra $24,924 in repayments to gain an extra $44,000 in equity.

Also, if your investment property was negatively geared, you’d be able to use some of the interest payments to reduce your taxable income.

WARNING: This strategy could backfire if your property doesn’t increase in value during the five-year period or if you can’t afford the higher repayments once it ends.

Pro #3. Repay higher-interest debt

Starting your mortgage with an interest-only term could be smart if you also had to repay other debts that were priced higher than the 5 per cent being charged for your mortgage.

For example, you could use the extra $421 per month to pay off a car loan (at, say, 8 per cent), a personal loan (12 per cent) or a credit card debt (15 per cent).

WARNING: This strategy could backfire if you didn’t use the extra money to repay the other debts or if you couldn’t afford the higher repayments once your interest-only period ended.

What are the cons of interest-only loans?

There are two big disadvantages with interest-only loans.

First, your mortgage doesn’t decrease during the interest-only period.

Second, you end up paying more over the life of the mortgage.

The other disadvantage is that the repayments you will be charged once you move from interest-only to principal-and-interest will be higher than if you’d been on principal-and-interest all along.

That could cause problems if your financial position hadn’t improved during the interest-only period.

How do you compare interest-only loans?

You should compare interest-only loans by looking at these five main factors:

  1. Advertised rate
  2. Revert rate
  3. Fees
  4. Comparison rate
  5. Features

All five factors are explained in more detail in the boxes below.

Factor #1. Advertised rate

The advertised interest rate is an obvious place to start when comparing interest-only mortgages.

All things being equal, a home loan with a lower interest rate is better than a home loan with a higher interest. However, as the other comparison points below illustrate, all things are often not equal.

Factor #2. Revert rate

Once your interest-only period ends, your interest-only home loan will revert to a principal-and-interest (P&I) home loan. Lenders generally charge a different interest rate for P&I mortgages than interest-only mortgages, so you’ll also want to compare these ‘revert rates’ when doing your research.

Factor #3. Fees

Interest-only home loans can come with a range of fees that can add significantly to the cost of the mortgage.

You may be asked to pay upfront fees when you apply, monthly/annual fees during the life of the loan and discharge fees whenever you close the loan.

Factor #4. Comparison rate

When you research interest-only mortgages, you’ll be shown two interest rates - the advertised rate and the comparison rate. The advertised rate is just what it looks like - the interest rate you’ll be charged. The comparison rate, by contrast, combines the advertised rate with the main fees you’ll have to pay.

As a result, the comparison rate tends to give a better view of the total cost of the loan than the advertised rate.

Factor #5. Features

Interest-only mortgages may include a range of features that make the loan more flexible and easier to repay. Features might include:

  • Offset account - an offset account is a linked transaction account that not only gives you ready access to cash but also reduces how much interest you’re charged. For example, if you have an outstanding mortgage of $500,000 and an offset account balance of $20,000, you’ll be charged interest on $480,000 rather than $500,000.
  • Redraw facility - a redraw facility allows you to ‘borrow back’ (or redraw) any extra repayments you’ve made. A redraw facility also reduces how much interest you’re charged, just like an offset account.
  • Loan split - a loan split allows you to divide your mortgage into two loans if you can’t decide whether to choose a variable rate or a fixed rate. One loan would have a variable rate and the other would have a fixed rate.
  • Repayment holiday - some lenders will allow you to pause your interest-only mortgage repayments to help you through a life event, such as a pregnancy. However, please note that when your repayment holiday ends, your monthly repayments will probably be increased so your home loan is still paid off according to the original schedule.

Who has the best interest-only loans?

Unfortunately, it’s impossible to say who has the ‘best’ interest-only loans.

One reason is that mortgages are highly subjective - one person might prefer a loan that has a lower interest rate but no offset account, while another might prefer a loan that does have an offset account but comes with a higher rate.

Another point worth mentioning is that lenders often change their interest rates, fees and policies, so whichever interest-only loan you consider the best today might not be the best tomorrow.

Why would I want an interest-only home loan?

Interest-only loans aren’t for everyone, because they come with both risks and disadvantages.

For some people, though, interest-only home loans can make sense, because the mortgage payments are smaller (at least before it reverts to a principal-and-interest loan).

These ‘savings’ can then be used for other purposes, such as buying another property.

How do you take out an interest-only loan?

There are three ways you can take out an interest-only loan:

  1. Use a comparison site (like RateCity)
  2. Go through a mortgage broker
  3. Go direct-to-lender

Are interest-only loans dangerous?

Interest-only loans can be useful products when they’re managed properly - but they can be dangerous when they’re not.

The danger lies in not being able to afford the mortgage repayments once the loan reverts from an interest-only mortgage to a principal-and-interest (P&I) mortgage.

During the interest-only stage, your repayments will be lower than if you had taken out a P&I loan. But once the loan reverts to P&I, your repayments will be higher.

Imagine you take out a $400,000 mortgage with a 30-year loan term and an interest rate of 4.5 per cent. The table below shows how your repayments would differ if you chose a standard P&I loan or a loan with a five-year interest-only term.

Scenario P&I loan IO for 5yrs
Monthly repayments in years 1 to 5 $2,027 $1,500
Monthly repayments in years 6 to 30 $2,027 $2,223
Total repayments made $729,627 $756,999
Additional interest paid due to the interest-only period $0 $27,372

Should I take out an interest-only loan?

People sign up for interest-only loans because they allow you to lower your repayments during the interest-only period.

However, these initial savings come at a cost – literally.

First, you’ll have to accept higher repayments once the interest-only period ends.

Secondly, you’ll have to pay more over the life of the mortgage.

That’s why you should think carefully before taking out this sort of loan.

It sounds obvious, but you should only choose an interest-only loan over a principal-and-interest loan if you’re convinced the short-term gains will exceed the long-term costs.

The key, though, is to actually do your sums.

Frequently asked questions

What is an interest-only loan? How do I work out interest-only loan repayments?

An ‘interest-only’ loan is a loan where the borrower is only required to pay back the interest on the loan. Typically, banks will only let lenders do this for a fixed period of time – often five years – however some lenders will be happy to extend this.

Interest-only loans are popular with investors who aren’t keen on putting a lot of capital into their investment property. It is also a handy feature for people who need to reduce their mortgage repayments for a short period of time while they are travelling overseas, or taking time off to look after a new family member, for example.

While moving on to interest-only will make your monthly repayments cheaper, ultimately, you will end up paying your bank thousands of dollars extra in interest to make up for the time where you weren’t paying off the principal.

What is the difference between fixed, variable and split rates?

Fixed rate

A fixed rate home loan is a loan where the interest rate is set for a certain amount of time, usually between one and 15 years. The advantage of a fixed rate is that you know exactly how much your repayments will be for the duration of the fixed term. There are some disadvantages to fixing that you need to be aware of. Some products won’t let you make extra repayments, or offer tools such as an offset account to help you reduce your interest, while others will charge a significant break fee if you decide to terminate the loan before the fixed period finishes.

Variable rate

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.

Split rates home loans

A split loan lets you fix a portion of your loan, and leave the remainder on a variable rate so you get a bet each way on fixed and variable rates. A split loan is a good option for someone who wants the peace of mind that regular repayments can provide but still wants to retain some of the additional features variable loans typically provide such as an offset account. Of course, with most things in life, split loans are still a trade-off. If the variable rate goes down, for example, the lower interest rates will only apply to the section that you didn’t fix.

How does an offset account work?

An offset account functions as a transaction account that is linked to your home loan. The balance of this account is offset daily against the loan amount and reduces the amount of principal that you pay interest on.

By using an offset account it’s possible to reduce the length of your loan and the total amount of interest payed by thousands of dollars. 

Example: If you have a mortgage of $500,000 but holding an offset account with $50,000, you will only pay interest on $450,000 rather then $500,000.

What is the difference between a fixed rate and variable rate?

A variable rate can fluctuate over the life of a loan as determined by your lender. While the rate is broadly reflective of market conditions, including the Reserve Bank’s cash rate, it is by no means the sole determining factor in your bank’s decision-making process.

A fixed rate is one which is set for a period of time, regardless of market fluctuations. Fixed rates can be as short as one year or as long as 15 years however after this time it will revert to a variable rate, unless you negotiate with your bank to enter into another fixed term agreement

Variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts however fixed rates do offer customers a level of security by knowing exactly how much they need to set aside each month.

What is the difference between offset and redraw?

The difference between an offset and redraw account is that an offset account is intended to work as a transaction account that can be accessed whenever you need. A redraw facility on the other hand is more like an “emergency fund” of money that you can draw on if needed but isn’t used for everyday expenses.

What is a fixed home loan?

A fixed rate home loan is a loan where the interest rate is set for a certain amount of time, usually between one and 15 years. The advantage of a fixed rate is that you know exactly how much your repayments will be for the duration of the fixed term. There are some disadvantages to fixing that you need to be aware of. Some products won’t let you make extra repayments, or offer tools such as an offset account to help you reduce your interest, while others will charge a significant break fee if you decide to terminate the loan before the fixed period finishes.

What is 'principal and interest'?

‘Principal and interest’ loans are the most common type of home loans on the market. The principal part of the loan is the initial sum lent to the customer and the interest is the money paid on top of this, at the agreed interest rate, until the end of the loan.

By reducing the principal amount, the total of interest charged will also become smaller until eventually the debt is paid off in full.

How can I calculate interest on my home loan?

You can calculate the total interest you will pay over the life of your loan by using a mortgage calculator. The calculator will estimate your repayments based on the amount you want to borrow, the interest rate, the length of your loan, whether you are an owner-occupier or an investor and whether you plan to pay ‘principal and interest’ or ‘interest-only’.

If you are buying a new home, the calculator will also help you work out how much you’ll need to pay in stamp duty and other related costs.

What is the best interest rate for a mortgage?

The fastest way to find out what the lowest interest rates on the market are is to use a comparison website.

While a low interest rate is highly preferable, it is not the only factor that will determine whether a particular loan is right for you.

Loans with low interest rates can often include hidden catches, such as high fees or a period of low rates which jumps up after the introductory period has ended.

To work out the best value for money, have a look at a loan’s comparison rate and read the fine print to get across all the fees and charges that you could be theoretically charged over the life of the loan.

How do I calculate monthly mortgage repayments?

Work out your mortgage repayments using a home loan calculator that takes into account your deposit size, property value and interest rate. This is divided by the loan term you choose (for example, there are 360 months in a 30-year mortgage) to determine the monthly repayments over this time frame.

Over the course of your loan, your monthly repayment amount will be affected by changes to your interest rate, plus any circumstances where you opt to pay interest-only for a period of time, instead of principal and interest.

What is the average length of a home loan?

Most Aussie lenders offer home loans with a 30-year term, meaning that you should pay back the full loan amount and the interest you owe on the amount in 30 years. 

However, home loans can also have a shorter or longer term. They may be as low as ten years or up to 45 years, depending on the product and lender. 

It’s worth remembering that a longer loan term usually means you’ll end up paying a lot more interest in total, but your scheduled repayments may be more manageable. In contrast, you could opt for a shorter loan term if you are comfortable making large repayments in exchange for paying less interest over the term of the loan.

How much are repayments on a $250K mortgage?

The exact repayment amount for a $250,000 mortgage will be determined by several factors including your deposit size, interest rate and the type of loan. It is best to use a mortgage calculator to determine your actual repayment size.

For example, the monthly repayments on a $250,000 loan with a 5 per cent interest rate over 30 years will be $1342. For a loan of $300,000 on the same rate and loan term, the monthly repayments will be $1610 and for a $500,000 loan, the monthly repayments will be $2684.

What happens to my home loan when interest rates rise?

If you are on a variable rate home loan, every so often your rate will be subject to increases and decreases. Rate changes are determined by your lender, not the Reserve Bank of Australia, however often when the RBA changes the cash rate, a number of banks will follow suit, at least to some extent. You can use RateCity cash rate to check how the latest interest rate change affected your mortgage interest rate.

When your rate rises, you will be required to pay your bank more each month in mortgage repayments. Similarly, if your interest rate is cut, then your monthly repayments will decrease. Your lender will notify you of what your new repayments will be, although you can do the calculations yourself, and compare other home loan rates using our mortgage calculator.

There is no way of conclusively predicting when interest rates will go up or down on home loans so if you prefer a more stable approach consider opting for a fixed rate loan.

How long should I have my mortgage for?

The standard length of a mortgage is between 25-30 years however they can be as long as 40 years and as few as one. There is a benefit to having a shorter mortgage as the faster you pay off the amount you owe, the less you’ll pay your bank in interest.

Of course, shorter mortgages will require higher monthly payments so plug the numbers into a mortgage calculator to find out how many years you can potentially shave off your budget.

For example monthly repayments on a $500,000 over 25 years with an interest rate of 5% are $2923. On the same loan with the same interest rate over 30 years repayments would be $2684 a month. At first blush, the 30 year mortgage sounds great with significantly lower monthly repayments but remember, stretching your loan out by an extra five years will see you hand over $89,396 in interest repayments to your bank.

How long does Bankwest take to approve home loans?

Full approval for a home loan usually involves a property valuation, which, Bankwest suggests, can take “a week or two”. As a result, getting your home loan approved may take longer. However, you may get full approval within this time if you applied for and received conditional approval, sometimes called a pre-approval, from Bankwest before finalising the home you want to buy.  

Another way of speeding up approvals can be by completing, signing, and submitting your home loan application digitally. Essentially, you give the bank or your mortgage broker a copy of your home’s sale contract and then complete the rest of the steps online. Bankwest has claimed this cuts the approval time to less than four days, although this may only happen if your income and credit history can be verified easily, or if your home’s valuation doesn’t take time.

What are the NAB term deposit interest rates for businesses?

If you’re looking to lock in a return on your business savings, one option is a business term deposit with NAB. The big four bank provides competitive interest rates while giving you the flexibility to choose the term. NAB offers business term deposit interest rates for investments of between $5,000 to $499,999.

NAB doesn’t charge any monthly account or application fees. The interest is calculated daily and for the 90-day term and six months term, you will get paid when the deposit matures. For the 12 months term, you can either choose to get paid monthly, quarterly, half-yearly or annually. 

If you wish to withdraw your funds before the deposit matures, you need to give NAB 31 days notice. However, they do make exceptions if you’re experiencing hardship and need the funds immediately. Either way, you may have to bear the prepayment cost, which you can learn more about in the Terms and Conditions.

Why should I get an ING home loan pre-approval?

When you apply for an ING home loan pre-approval, you might be required to provide proof of employment and income, savings, as well as details on any on-going debts. The lender could also make a credit enquiry against your name. If you’re pre-approved, you will know how much money ING is willing to lend you. 

Please note, however, that a pre-approval is nothing more than an idea of your ability to borrow funds and is not the final approval. You should receive the home loan approval  only after finalising the property and submitting a formal loan application to the lender, ING. Additionally, a pre-approval does not stay valid indefinitely, since your financial circumstances and the home loan market could change overnight.

 

 

Can I apply for an ANZ non-resident home loan? 

You may be eligible to apply for an ANZ non-resident home loan only if you meet the following two conditions:

  1. You hold a Temporary Skill Shortage (TSS) visa or its predecessor, the Temporary Skilled Work (subclass 457) visa.
  2. Your job is included in the Australian government’s Medium and Long Term Strategic Skills List. 

However, non-resident home loan applications may need Foreign Investment Review Board (FIRB) approval in addition to meeting ANZ’s Mortgage Credit Requirements. Also, they may not be eligible for loans that require paying for Lender’s Mortgage Insurance (LMI). As a result, you may not be able to borrow more than 80 per cent of your home’s value. However, you can apply as a co-borrower with your spouse if they are a citizen of either Australia or New Zealand, or are a permanent resident.

How do you qualify for a CBA home loan with casual employment?

Qualifying for a home loan without a full-time job may be challenging, but it can be done. The first step is to understand how a CBA home loan is assessed when you have casual employment.

Most lenders will assess your expenses and savings while checking your loan eligibility, checking on factors crucial to home loan approval, such as if your bills are paid on time and what your credit score presently looks like. 

Your income can be one of the most critical factors to determine your final approved home loan amount. As such, you’ll need to provide payslip copies to lenders to assist them in assessing your income during the loan tenure, regardless of your employment status, full-time, part-time, or otherwise.

Casual employees will want to be casually employed for at least 12 months to be eligible for a home loan. Alternatively, you want to have worked as a permanent casual worker (working for a fixed number of hours per week) for at least one month, or you should have been in your current job for a minimum of three months (if the hours are irregular) to be eligible for the loan.

How do I get a pre-approved home loan with Aussie?

Getting Aussie home loan pre-approval means receiving conditional support from Aussie Home Loans to borrow the money you need to buy a home. 

It’s an indication of the approximate amount Aussie may offer you, subject to some terms and conditions. Keep in mind, having a pre-approved home loan does not guarantee an actual approval of your loan when it comes time to buy.

Aussie home loan pre-approval often involves speaking to one of the lender’s brokers. You can make an appointment online. You’ll often have to submit your personal details and other information about your assets, income, liabilities and expenses.  It’s worth remembering that a pre-approved loan is usually valid for a few months.