Australia's interest-only mortgages

Our infographic explains how interest-only mortgages have grown in Australia, how much people are borrowing for an interest-only loan and how much you will really pay for this type of loan.

interest-only mortgages part 1
interest-only mortgages part 2
interest-only mortgages part 3

Australia's interest-only mortgages (Accessible text version)

The average interest-only mortgage is $430k (2014).

For owner-occupiers - 1 in 4 loans are interest-only.

For investors - 2 in 3 loans are interest-only. (1)

Total amount borrowed in interest-only mortgages (2)

  • $88.7 billion in 2012
  • $153.8 billion in 2015

Pitfalls of interest-only mortgages

  • Higher repayments when interest-only period ends
  • More expensive over life of the loan
  • Principal will not reduce

Benefits of interest-only mortgages

  • Lower repayments at start of the loan
  • Can be used for investing and tax purposes
  • Money saved can help pay off other high-interest credit

Journey of interest-only loan borrowers

Each borrow $500,000 at 6% over 30 years (3)

  Principal and interest Interest-only for 5 years Interest-only for 10 years Interest-only for 15 years
Monthly repayments during interest-only period $3,000 $2,500 $2,500 $2,500
Monthly repayments after interest-only period $3,000 $3,220 $3,580 $4,220
Total repayments made $1,079,000 $1,116,000 $1,159,000 $1,209,000
Additional interest paid due to the interest-only period $0 $37,200 $80,500 $130,200

Before you get an interest-only mortgage

Things to consider:

  • Can I afford the higher repayments when the interest-only period ends?
  • Can I trust myself not to dip into my offset account?
  • Will the short-term benefits outweigh the long-term costs?

What can you do to get a home loan?

  • Reduce costs - use an offset account to lower interest payments
  • Review your plan - expand your search for properties and locations
  • Better rate - shop around for a loan with a lower interest rate

Use our interest-only mortgage calculator to find out what it will really cost you.


(1) ASIC survey of 11 lenders, 2015, data not publically available
(2) APRA, Quarterly authorised deposit-taking institution property exposures: June 2016
(3) Calculations using ASIC's MoneySmart interest-only mortgage calculator (excluding fees)

Related links

Last updated: 13 Sep 2016