An interest-only home loan requires the borrower to only make repayments on the interest accumulated on their loan, rather than the principal loan amount. Interest-only loans have a fixed period (for example, 1-7 years).

When times are tuff an interest-only mortgage allows borrowers to reduce their repayments in time of need or may enable property investors, to claim tax benefits*, as the total interest repayment may be tax-deductible. 

You pay nothing off the principal during the interest-only period, so the amount borrowed doesn’t reduce. Your repayments will increase after the interest-only period, which may not be affordable. The value of an asset such as your house or property, less any money owing on it. 

If you pay both the Principal and Interest you’ll reduce your loan balance earlier in the loan term, which means the amount of interest payable will also reduce, because interest is calculated on the outstanding balance of your home loan.

Interest rates for Interest Only home loans tend to be higher than Principal & Interest home loans (where your payments cover both the principal and the interest).