Understanding interest only repayments and terms

With interest only repayments, customers are only required to pay the interest amount that is charged to their home loan account. This mean that the principal won’t reduce over the interest only period.

At the end of the interest only period (up to 5 years), the customer will revert to principal and interest repayments and will be required to pay both interest on the loan plus an amount that will repay the loan off over the remaining loan term (i.e. the principal). This will typically increase their home loan repayments.

Interest only (IO) terms of 1 to 5 years are available to both new and existing customers and are subject to credit approval. The home loan must also have at least 20 years remaining at the end of the interest only term.

Typically, interest only repayments aren’t available for a term less than one year unless set up as part of a financial assistance arrangement when your customer is facing financial difficulty.

All new home loan products can apply for interest only repayments via ApplyOnline. Existing customers with a BSB starting with 182 may also apply for interest only repayments.

Interest only repayments are available for both variable and fixed rate loans.

Our interest only rates are available on our website, where you can find both variable and fixed interest rates. These interest rates are also available in your aggregator’s software.

If your customer requires an interest only repayment period, you must explain the following to them:

• The maximum interest only period is 5 years
• The loan must have at least 20 years remaining at the end of the interest only term
• Interest only loans may attract a higher interest rate compared to principal and interest (P&I) loans
• Interest only loan repayments won’t pay off any principal during the interest only term, therefore the amount of equity that can be built-up in the home will be less with an interest only loan than with a principal and interest loan, over the same period.
• Once the interest only term ends, payments will increase to cover principal and interest 
• Applicant(s) are likely to pay more interest over the loan term than if they didn’t enter into an interest only agreement.

Our Personal Help Centre provides additional information on how interest only repayments are calculated. 

When submitting a home loan application, there are different application steps, depending on whether you’re applying for a home loan with:

• one interest only home loan account, or
• multiple loan accounts and different repayment types. 

See further information in Choosing which home loan is right for you.

Please note, to set up your customer’s home loan application with multiple loan accounts, you may need to edit the structure in ApplyOnline once you’ve submitted it from your aggregator’s software.

Your customer can choose to end the interest only term before the expiry date and move to principal and interest repayments. Your customer can contact our team via live chat in Macquarie Online or Mobile Banking to complete this variation.

Once repayments are changed to principal and interest, to move back to interest only repayments, they’d be subject to credit assessment and approval.

The interest only period is a maximum initial period of 5 years and can be extended up to a subsequent 5 years, subject to full credit assessment and approval. Once extended, the home loan must have at least 20 years remaining at the end of the interest only term.

For existing customers, if you wish to apply for a conversion to, or extension of an existing interest only period, they’ll need to undergo a credit assessment.

Our Variations team can help you with this application. See Converting or extending an interest only period for more information.