Are interest rates for interest-only investment loans generally higher?

Yes – interest rates for interest-only investment loans do tend to be higher than P&I loans – generally about 0.5% to 1% higher than standard variable interest rates. This reflects the increased risk which lenders perceive investment properties to be compared to standard residential properties.

Can I extend my interest-only fixed rate period if my home construction falls behind?

You can – lenders understand that sometimes construction projects can run over time and many will allow you to extend your fixed rate period if you do experience a time blow-out. It is important to contact your lender as soon as you’re aware there may be issues with your construction time deadline.

Can I make extra repayments on my interest-only home loan?

Probably not. Because your interest-only period is fixed, along with your interest rate, then additional repayments on the loan probably won’t be permitted until the loan reverts to a standard P&I loan.

Do all interest-only loans revert to P&I loans?

Yes – after the interest-only period of the loan is over, it will revert to a principal and interest loan unless you ask your lender to extend the interest-only period. Usually, interest-only loans are only approved for a maximum of five years, although some can be extended to another five-year period depending on your lender.

Can I re-fix an interest-only loan once the initial fixed period has ended?

Yes – as mentioned above, it’s possible to do this, but you’ll need to talk to your loan provider before the end of the fixed interest-only period, otherwise your loan may revert to a P&I loan before you have time to change your loan conditions. Allow at least two weeks before the end of your loan period to give your lender time to re-issue loan documents. If you think you will be unable to make the repayments once it reverts to a P&I loan, you could consider refinancing your mortgage to one with a longer loan term or a lower interest rate to make repayments more affordable.

What features are usually available with interest-only loans?

Many of the features of P&I loans are also available for interest-only loans. These may include the ability to add a loan redraw facility, to split your loan between a fixed and variable rate, and the ability to make additional repayments too (although these aren’t always allowed and are sometimes capped). Mortgage offset accounts are less common but are still available for interest only loans.

How do I compare interest-only loans?

Firstly, it’s crucial to look at the interest rate being offered and find a loan with the lowest rate possible. However, you also need to consider which loan features (such as a redraw facility, or the ability to make extra repayments) you really want on your loan. Fortunately, Savvy can help you compare a variety of home loans all in one place so you can find one that’s just right for your personal needs.