Interest-only home loans NZ

On a normal principal and interest loan, every repayment pays some interest and some of the loan. On interest-only, you pay the interest and nothing else. When the interest-only period ends, the loan switches to principal and interest over the remaining term. Because that term is now shorter, the repayments jump.

Five years of interest-only saves about $657 a month at the start, but it adds roughly $44,000 of interest over the life of the loan (about $670,000 in total interest against $626,000). This assumes the rate stays at 5.50%, which it won’t, so treat it as a guide.

• Property investors, who often prefer to keep cash flow up and pay down their own home first.
• Owner-occupiers going through a short squeeze, like parental leave, a business start-up, or the middle of a renovation or build.
• People with a clear plan to reduce the loan another way, such as selling another property.

For most people buying their own home, I’d rather see principal and interest from day one, with interest-only kept for a specific reason and a set time.

It varies by lender and by purpose. Owner-occupiers are usually limited to a shorter period, and investors can often get longer or roll it over. Banks will check that you could afford full principal and interest repayments, not just the interest, so it doesn’t let you borrow more.

For residential rental property, interest is fully deductible again from 1 April 2025, under IRD’s current rules. Loss ring-fencing still applies, so a rental loss can’t be offset against your salary. Talk to your accountant about your situation. See property investment loans.

• IRD: residential property interest rules
• Reserve Bank: debt-to-income restrictions explained