Compare interest only investment loan options
Find interest only investment loans from a range of Australian lenders that suit your needs. Compare interest rates, mortgage repayments, fees and more.
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Interest only investment loan rates
The one thing that you can guarantee in life, along with death and taxes, is that interest rates will change. Depending on pronouncements by the central bank, they could go up or down, or they could remain static for a period of time, depending on the economic climate. When you start to do your research on investment loan rates for a second or further property, you may be offered a range of products. As well as the standard fixed, variable or split rates, as with standard mortgages, you could look into interest only investment loan rates to see if you think such a loan would be suitable for your needs.
What is an interest only investment loan?
Usually, when people take out a mortgage, they pay interest on the sum borrowed together with an agreed amount that reduces the principal sum over the period of time of the loan. The idea is that at the end of the mortgage term, you have paid off everything that you owe and own the property. With an interest only investment loan, your repayments just pay the interest part of the loan, they do not reduce the principal sum. It gives you the opportunity to manage your cash flow by making smaller monthly repayments than for a standard home loan, and when you can afford some extra repayments you can put them towards the principal. Depending on your lender, you may be able to get a flexible repayment schedule so that you can have greater control over cash flow.
What are the risks with this type of loan?
As with any loan there are risks, the main one being a change of personal circumstances where your income is suddenly diminished. It's one reason why an interest only investment loan could be attractive, with those lower monthly repayments and more flexibility. Another risk is that interest rates rise and are then passed on by your lender, meaning that you'll have to have additional resources to make your repayments. The flip side to this is that if interest rates go down, your lender should (they don't always) pass the cut to you, potentially enabling you to put some money towards paying off the principal as well.
How do interest only investment loan rates compare with other products?
This is where you need to do your research to source the best interest rate and conditions that you can. It's important to remember that although you may be able to get a fixed rate for a period of time, you are still not paying off the principal sum. This means that at the end of the loan period, you will still have to provide the money to pay this off. Some people will sell at the end of the period, hoping the property has increased in price so that they make a profit, while others may use a savings vehicle looking for good returns over a period of many years to use as repayment of the principal. Whatever you decide, do some thorough research to determine what's best for you.
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Can you change your home loan to an investment loan?
Mortgage lenders offer different types of home loans to owner occupiers and to property investors. After all, buying a home to live in is a different type of transaction to buying an investment property, and comes with a different type of risk for the lender. So, what steps would you need to take to turn your owner occupied home loan into an investment loan?
Investor rates stay down across some of Australia’s best investor home loans in April 2021
While much of the recent property market activity has been attributed to first home buyers and other owner occupiers, investors seeking to expand their portfolios may also be looking to take advantage of lower interest rates.
Personal Finance Editor
Mark Bristow is RateCity's Home & Personal Finances Editor, and an experienced analyst, researcher, and producer. Working for over ten years, Mark previously wrote and researched commercial real estate at CoreLogic, and has seen articles published at Lifehacker and Business Insider, among others.
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Frequently asked questions
What is an investment loan?
An investment loan is a home loan that is taken out to purchase a property purely for investment purposes. This means that the purchaser will not be living in the property but will instead rent it out or simply retain it for purposes of capital growth.
Is a second mortgage tax deductible?
If you take out a loan to invest in a property, you can claim a tax deduction on the interest you pay as long as the property is earning income. In other words, if you rent the property for the entire year, you can claim a tax deduction for 12 months of interest payments. But, if you use the home for six months and rent it for the other six months, you can claim deduction only for 50 per cent of the interest amount.
You also get tax benefits for items that lose value over the years. But, the entire amount is not allowed as a tax deduction in the same year; instead you’ll have to claim a portion each year over a number of years.
Additional borrowing costs, such as maintenance fees, stamp duty, offset account setting up fees, Lenders Mortgage Insurance (LMI), and establishment fees, can also be claimed as tax deductions.
Before you claim second mortgage tax deductions, it’s often worth checking with an experienced tax expert.
Do first-time home loan applicants qualify for tax benefits?
If you’re a first-time homebuyer applying for a home loan, you could qualify for some tax deductions, but only if your property is a source of income for you. For instance, if you rent out the property, you could get tax deductions on the cost of constructing or renovating it, the loss in value of depreciating assets such as furniture or electrical fixtures, and the home loan interest.
Homeowners using their property as a residence could also get a tax deduction if a part or all of it is used for business. These deductions include tax write-offs for depreciating assets and deductions for operating expenses like utilities’ payments and service charges for phones and the internet. However, people running businesses from their residences don’t qualify for a tax deduction on the interest paid on their home loans.
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.
When does Commonwealth Bank charge an early exit fee?
When you take out a fixed interest home loan with the Commonwealth Bank, you’re able to lock the interest for a particular period. If the rates change during this period, your repayments remain unchanged. If you break the loan during the fixed interest period, you’ll have to pay the Commonwealth Bank home loan early exit fee and an administrative fee.
The Early Repayment Adjustment (ERA) and Administrative fees are applicable in the following instances:
- If you switch your loan from fixed interest to variable rate
- When you apply for a top-up home loan
- If you repay over and above the annual threshold limit, which is $10,000 per year during the fixed interest period
- When you prepay the entire outstanding loan balance before the end of the fixed interest duration.
The fee calculation depends on the interest rates, the amount you’ve repaid and the loan size. You can contact the lender to understand more about what you may have to pay.
What are the different types of home loan interest rates?
A home loan interest rate is used to calculate how much you’ll pay the lender, usually annually, above the amount you borrow. It’s what the lenders charge you for them lending you money and will impact the total amount you’ll pay over the life of your home loan.
Having understood what are home loan rates in general, here are the two types you usually have with a home loan:
These interest rates remain constant for a specific period and are a good option if you’re a first-time buyer or if you’re looking for a fixed monthly repayment. One possible downside of a fixed rate is that it may be higher than a variable rate. Also, you don’t benefit from any lowering of interest rates in the market. On the flip side, if rates go up, your rate won’t change, possibly saving you money.
With variable interest rates, the lender can change them at any time. This change can be based on economic conditions or other reasons. Changes in interest rates could be beneficial if your monthly repayment decreases but can be a problem if it increases. Variable interest rates offer several other benefits often not available with fixed rate home loans like redraw and offset facilities and free extra repayments.
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.
How can I pay off my home loan faster?
The quickest way to pay off your home loan is to make regular extra contributions in addition to your monthly repayments to pay down the principal as fast as possible. This in turn reduces the amount of interest paid overall and shortens the length of the loan.
Another option may be to increase the frequency of your payments to fortnightly or weekly, rather than monthly, which may then reduce the amount of interest you are charged, depending on how your lender calculates repayments.
Who has the best home loan?
Determining who has the ‘best’ home loan really does depend on your own personal circumstances and requirements. It may be tempting to judge a loan merely on the interest rate but there can be added value in the extras on offer, such as offset and redraw facilities, that aren’t available with all low rate loans.
To determine which loan is the best for you, think about whether you would prefer the consistency of a fixed loan or the flexibility and potential benefits of a variable loan. Then determine which features will be necessary throughout the life of your loan. Thirdly, consider how much you are willing to pay in fees for the loan you want. Once you find the perfect combination of these three elements you are on your way to determining the best loan for you.
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.
When do mortgage payments start after settlement?
Generally speaking, your first mortgage payment falls due one month after the settlement date. However, this may vary based on your mortgage terms. You can check the exact date by contacting your lender.
Usually your settlement agent will meet the seller’s representatives to exchange documents at an agreed place and time. The balance purchase price is paid to the seller. The lender will register a mortgage against your title and give you the funds to purchase the new home.
Once the settlement process is complete, the lender allows you to draw down the loan. The loan amount is debited from your loan account. As soon as the settlement paperwork is sorted, you can collect the keys to your new home and work your way through the moving-in checklist.
What are the features of home loans for expats from Westpac?
If you’re an Australian citizen living and working abroad, you can borrow to buy a property in Australia. With a Westpac non-resident home loan, you can borrow up to 80 per cent of the property value to purchase a property whilst living overseas. The minimum loan amount for these loans is $25,000, with a maximum loan term of 30 years.
The interest rates and other fees for Westpac non-resident home loans are the same as regular home loans offered to borrowers living in Australia. You’ll have to submit proof of income, six-month bank statements, an employment letter, and your last two payslips. You may also be required to submit a copy of your passport and visa that shows you’re allowed to live and work abroad.
How does ANZ calculate early repayment costs?
If you have a fixed interest home loan, you’ll pay ANZ home loan early exit fees for partial or full repayment of the loan amount before the end of the fixed interest rate duration. These fees are also payable if you switch to another variable or fixed-rate loan.
The ANZ mortgage early exit fees can vary and you can get an estimate from the lender before you decide to prepay the loan. However, the exact early repayment cost can be determined when you prepay the loan.
The early exit fees are calculated after considering factors like the prepayment amount, the period left before the fixed-rate duration ends, and the change in the market rates since the beginning of the fixed-rate period. The early exit fees may not be charged if you’re paying off a smaller amount. You can check with ANZ to see how much you’ll have to pay.
What is the difference between fixed, variable and split rates?
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.
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 do you determine which home loan rates/products I’m shown?
When you check your home loan rate, you’ll supply some basic information about your current loan, including the amount owing on your mortgage and your current interest rate.
We’ll compare this information to the home loan options in the RateCity database and show you which home loan products you may be eligible to apply for.
Can I take a personal loan after a home loan?
Are you struggling to pay the deposit for your dream home? A personal loan can help you pay the deposit. The question that may arise in your mind is can I take a home loan after a personal loan, or can you take a personal loan at the same time as a home loan, as it is. The answer is that, yes, provided you can meet the general eligibility criteria for both a personal loan and a home loan, your application should be approved. Those eligibility criteria may include:
- Higher-income to show repayment capability for both the loans
- Clear credit history with no delays in bill payments or defaults on debts
- Zero or minimal current outstanding debt
- Some amount of savings
- Proven rent history will be positively perceived by the lenders
A personal loan after or during a home loan may impact serviceability, however, as the numbers can seriously add up. Every loan you avail of increases your monthly installments and the amount you use to repay the personal loan will be considered to lower the money available for the repayment of your home loan.
As to whether you can get a personal loan after your home loan, the answer is a very likely "yes", though it does come with a caveat: as long as you can show sufficient income to repay both the loans on time, you should be able to get that personal loan approved. A personal loan can also help to improve your credit score showing financial discipline and responsibility, which may benefit you with more favorable terms for your home loan.
What is the amortisation period?
Popularly known as the loan term, the amortisation period is the time over which the borrower must pay back both the loan’s principal and interest. It is usually determined during the application approval process.