Compare interest-only home loans for March 2025

What are the best interest-only home loan rates?

As at 5 March 2025, the best interest-only rates on a variable home loan of $400k, for a borrower with 80% LVR are:

Investors:

• Gateway Bank Green Plus Home Loan | 5.90% p.a. (6.18% p.a. comparison rate*) (conditions apply)
• Move Bank Everyday Variable Home Loan | 6.04% p.a. (5.94% p.a. comparison rate*)
• Gateway Bank Low Rate Essentials Home Loan | 6.06% p.a. (6.08% p.a. comparison rate*)
• Queensland Country Bank Ultimate Home Loan Special (Package) | 6.09% p.a. (6.42% p.a. comparison rate*)

Owner occupiers:

• Move Bank Everyday Variable Home Loan | 5.69% p.a. (5.74% p.a. comparison rate*)
• Unity Bank First Home Buyer Variable Home Loan | 5.74% p.a. (6.52% p.a. comparison rate*)
• Move Bank Offset Home Loan | 5.89% p.a. (5.94% p.a. comparison rate*)
• Queensland Country Bank Ultimate Home Loan Special (Package) | 5.89% p.a. (6.23% p.a. comparison rate*)

What is an interest-only home loan? 

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.   

How do interest-only home loans work?

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. 

What happens when an interest-only loan expires? 

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.

What is the difference between an interest-only loan and a principal and interest loan?

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. 

How do interest-only home loans compare on cost?

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.

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.

Pros and cons of interest-only home loans

Benefits of interest only loan 

The main benefit of an interest-only home loan is the lower repayments. Home loan interest is also a tax deduction for property investors.

Disadvantages of interest-only loans

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. 

Why is an interest only loan better for an investment property?

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.