What is an interest only home loan?

An interest only home loan requires you to only repay the monthly interest on the amount borrowed (the principal) for a set term of 1-5 years. No repayments are required to reduce the principal amount borrowed, which means the loan balance doesn't reduce at all. At the end of the interest only period, the loan will change to a 'principal and interest' loan where you'll start repaying the amount borrowed, as well as interest on that amount. This will mean your loan repayments will be higher than if you had of made principal and interest repayments at the beginning of the loan.

Benefits of interest only home loans

We've listed out a number of reasons why investors choose to take out a BOQ interest only home loan.

Low repayments for the interest only period

By taking out an interest only home loan, your repayments are lower for an initial term before you are required to start paying down the principal loan amount.

Maximise tax benefits

Investors may choose to take an interest only loan in order to maximise their tax deductions. 

More cash flow

With lower repayments for the initial term, you'll have more money on hand to make improvements to your investment property.

Who are interest only home loans suitable for?

Interest only home loans are a popular choice for property investors who prefer not to pay down the loan at the start but instead use the extra money to make improvements to the property and hopefully increase its value. Making further improvements to the property will hopefully make the home more appealing to renters and increase your rental income.

As always, if you need any guidance in deciding what loan is the right for you, please contact your BOQ home lending specialist on 1300 55 72 72 or find your local branch.

What do I need to know about interest only home loans?

Comparing loans can be like comparing apples with oranges, so it’s important that you consider all the loan features before deciding if it’s the right one for you and your investment goals. 

  • Once the interest only period is over, you will need to make payments on both the principal and interest within the remaining loan term. This will mean your repayments will be much higher than it would be if principal repayments were made at the start of the loan term.
  • The interest rate for an interest only home loan may be higher than the interest rate for principal and interest rate home loan.
  • Interest only terms are also available on fixed rate loans - the interest only term must match the fixed rate term.
  • Our 1 Year Interest Prepaid Investment Home Loan enables investors who have extra funds on hand to 'prepay' the annual interest upfront to maximise their tax deductions.
  • You can have a mortgage offset linked to your home loan if you choose an eligible variable loan like our Clear Path Variable Interest Only Home Loan.
  • For a construction loan, during the construction period you only need to make interest only repayments. 

Interest Only Home Loans FAQs

  • What happens when my Interest Only term ends?

    When you applied for your Interest Only loan, you would have nominated the period of your Interest Only term. This is usually 1 to 5 years. At the end of your Interest Only term, your loan automatically changes to a variable rate loan with Principal and Interest repayments. As a result, your repayment amount may change and is likely to be higher. But that’s not the end of the story. You do have other options. 

  • What are my options after my Interest Only term ends?

    While your loan will automatically revert to a variable rate loan with Principal and Interest repayments, you’re not locked into that. Depending on what is important to you, other potential options could include:

    • extending your Interest Only term (subject to assessment and approval)
    • switching to a fixed rate term
    • automatically reverting to a variable rate with Principal and Interest repayments.
    • If you’re not sure whether to switch to a fixed rate or stay on a variable rate, you can even split your home loan so part of it is fixed and the other part is variable.

    With all these options, it can be a little confusing to figure out what’s right for you. But don’t worry, we’ll get in touch with you before your Interest Only term expires (around 30 to 60 days prior) with more information about the options you can consider and the steps you’ll need to take.

  • What is the difference between an Interest Only and Principal and Interest home loan?

    With Interest Only home loans, you only repay the monthly interest on the amount borrowed for a set term of 1 to 5 years. No repayments are required to reduce the principal amount borrowed, which means the loan balance doesn't reduce.

    Principal and Interest home loans repayments include a component that goes towards paying down the principal balance of the loan (the amount you borrowed) and a component that goes towards interest (the cost of borrowing). 

    For more information on Interest only vs Principal and Interest home loans, including examples, click here.

Our Interest Only Home Loans

Know what your repayments are for peace of mind

Fixed Rate Home Loan

A fixed rate home loan gives you certainty for up to 5 years without worrying about potential interest rate rises.

  • Owner occupier and investor options available
  • Great interest rates across our range of terms
  • Principal and interest, or interest only repayments

Pay off your home loan sooner

Intro Rate Variable Interest Only Home Loan

A discounted low rate home loan with all the great features including:

  • Owner occupier and investor options available
  • Unlimited free redraw and flexible repayments
  • 100% Mortgage offset account

Save with our simple investment home loan

Economy Variable Interest Only Home Loan

A simple home loan doesn't mean you have to compromise on its features.

  • Investment home loan option available
  • Unlimited free redraw
  • Unlimited additional repayments

Got any questions?

Get in touch with your BOQ lending specialist to answer any questions you may have. 

Get started online

Enquire online

Chat to us