A home loan repayment usually consists of

The principal – the amount you borrow

The interest – the amount the lender charges you

With an interest only loan, you will only be paying the interest off for a set amount of time. At the end of this period, the repayments increase and the loan converts to Principal and Interest repayments.


  • Lower repayments during the interest-only period could help you save more or pay off other more expensive debts.
  • May be useful for short-term loans, such as or a .
  • If you’re an investor, you could claim higher tax deductions from an investment property.


  • The deposit and interest rates are typically higher than those on a traditional loan (interest and principal)
  • The repayments increase after the interest-only period which may not be affordable
  • For the first five to ten years of the loan, your equity will not grow (unless you make extra payments)

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