What’s Interest Only?

A home loan repayment typically consists of two parts:

  • The principal component – the amount you borrow (your loan balance)  
  • The interest component – the amount the lender charges on your outstanding balance

With an Interest Only home loan, your minimum repayments will only cover the interest charges on your loan for an agreed period of time.  

This means your loan balance won’t reduce during the interest-only period, since you are not making any principal repayments.

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).

An interest only home loan may be suitable if you’re looking for: 

  • A way to maximise your tax deductions as a property investor  
  • A temporary way to reduce your outgoing expenses as well as manage a temporary income reduction (e.g. if you're receiving parental leave or paying educational costs while you’re studying)

An interest-only period is available for CommBank Investment home loans and Owner Occupied home loans.

Important things you should know

You’re paying more interest over the life of your home loan

Because you’re only paying the interest amount off your loan during your Interest Only period, you’re not paying the loan balance (principal component), which means you’ll pay more interest over the life of your loan.

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 Only periods

You can switch between Principal and Interest repayment options during the life of your loan. However, there are limits for how long you can have Interest Only periods. 

  • The maximum Interest Only period at any one time is 5 years for all CBA home loans
  • Total Interest Only periods allowed during the life of the loan is 5 years for owner occupiers and 10 years for investors
  • Interest Only is not available in the last 5 years of your loan term

These limits apply when you request a new or extended Interest Only payment.

Your Interest Only period expires

When your Interest Only period expires, your home loan repayments will change to Principal and Interest. This means your repayments will increase as you start paying off your loan balance.

To prepare for this change and remain in control of your repayments, make sure you know your expiry date and plan accordingly.

To find the expiry date for your CommBank home loan, log on to NetBank > View account > Account Information. Make sure you select your Interest Only home loan from the drop-down list.

Check in NetBank

How Interest Only affects repayments

Download image

With an Interest Only loan you choose to make payments that only cover the interest amount (for a set period). Interest Only payments are lower than if you were paying both the Principal and Interest components, however your loan balance isn’t reducing. 

At the end of an Interest Only period, the balance of the loan must be paid back to the bank over the period remaining before the end of the loan. This means that the Principal and Interest repayments will be higher than they would have been prior to the Interest Only period.

In this example, Jo has taken out a home loan of $500,000 for 30 years.1

  • If she were to make Principal and Interest repayments at 3.99% from year 1, her monthly repayments would be $2,385
  • If she decides to make Interest Only payments:
    • For the first 5 years of her loan at 4.61%, her monthly payments would be approximately $1,921
    • In year 6 her payments would revert to Principal and Interest at 3.99%. Her monthly repayments would then increase to $2,637

Work out what your repayments might be using the repayment calculator.

Graph of how interest only affects repayments

Know your options

Stay on Interest Only home loan 

  • If you’d like to remain on an interest Only period, please get in touch to find out which options are available to you
  • We may need to assess your financial circumstances to approve you for a new Interest Only period
  • Call us on 13 2224 8am to 8pm (AEST), any day or make an appointment.

Switch to a Principal and Interest home loan

  • To switch in NetBank go to 'Settings' and then select 'Change home loan repayment type'
  • To switch in the CommBank App, tap 'View accounts' then choose your home loan. Tap 'Manage loan' and then 'Change to Principal & Interest / Interest Only'.

Switch in NetBank

Switch to an Interest Only home loan

Speak to a Home Lending Specialist about your options.

 

Things you should know

1 Calculations are estimates provided as a guide only. They assume interest rates don’t change over the life of the loan and are calculated on the rate that applies for the initial period of the loan. Interest rates referenced are current rates and may change at any time. Fees and charges are payable. The calculations do not take into account fees, charges or other amounts that may be charged to your loan (such as establishment or monthly service fees or stamp duty).

2 Everyday Offset is a feature of our Complete Access Transaction Account which is linked to an eligible home loan, and accountholder/s must also be accountholders of the linked home loan. Interest is not charged on that part of the Home Loan balance equal to the balance of the Complete Access account.

Applications are subject to credit approval. Full terms and conditions will be included in our loan offer. Fees and charges are payable. Interest rates are subject to change.

As this advice has been prepared without considering your objectives, financial situation or needs, you should consider its appropriateness to your circumstances before acting on this advice.