Interest only home loans, explained
You pay the interest and nothing off the balance for a set term. Repayments are lower now and higher later.
How it works
For the interest only term you pay only the interest charged. The balance doesn’t fall. When the term ends, the loan switches to principal and interest over the years remaining, so the same debt is repaid in less time.
The step-up
Take a 30-year loan with five years interest only. After five years you repay the full balance over 25 years, not 30. The repayment rises twice over: principal is added, and the term is shorter. Plan for that date from the start.
Who it suits
- Investors who want to direct spare cash to their non-deductible home loan
- Borrowers building, or holding two properties for a short time
- People with a temporary drop in income, such as parental leave
For an owner occupier with no specific reason, it mostly means paying more interest for longer.
How lenders assess it
Lenders test your ability to repay over the principal and interest period only. Five years interest only on a 30-year loan is assessed as a 25-year loan, which lowers borrowing power. Extensions are a new application, not a formality.
Questions people ask
Can I make extra repayments during interest only?
On most variable loans, yes, or you can use an offset account to the same effect.
Can I extend my interest only term?
You can apply. The lender will reassess your income and the property value at that time.
General information, last updated November 2026. Scheme figures, lender policies and duty rates change, so confirm them before you rely on them.
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