Low rates for investment property loans on interest-only repayments have been as difficult to find as a unicorn in recent months due to the regulators cap on interest-only loans. Effective 30 August, Westpac has reduced its fixed rates on interest-only repayments by as much as 30 basis points (0.30%).

Whilst their fixed interest-only rates for investment properties (4.88% pa) are still quite high in comparison to other lenders, this move may well trigger movement from other lenders.

Lending is all cyclical – and this change could indicate that the peak is now complete and lenders will start to bring rates down as their interest-only volumes deplete.

Any rate reduction shows borrowers that the lender is open for business – let’s face it, if they don’t want your business, why offer competitive rates?

Why borrowers want interest-only loans

Well, for starters, interest-only loans have lower repayments as you’re not paying off the principal amount owing. Many would say that’s an issue, but in the right circumstances, interest-only is beneficial. It can free up cash to be invested elsewhere, like when flipping properties where capital growth is more important. Construction loans are interest-only as borrowers often need to pay rent in addition to the mortgage while the build is underway.

Investors also like interest-only loans to keep their rental yield as high as possible and it can help maximise tax deductions and cashflow.

Will other lenders reduce their interest-only investment rates?

In addition to Westpac reducing their fixed rates, St George, Bank of Melbourne and BankSA (all owned by Westpac) have reduced their 3 year fixed rate down to 4.64% interest-only for investment loans.  

Most lenders have been impacted by the regulator’s requirements to cap interest-only lending and as one lender reaches their limit, another takes on more borrowers. Borrowers having a choice between major and second tier lenders means there is a constant juggling of business between the banks.

Heritage Bank announced today that they will no longer accept new application for investment loans as they are close to the caps imposed by APRA. That means, borrowers who were originally considering Heritage for their next investment loan now need to look elsewhere.

As mortgage brokers we are alerted daily to interest rate changes from every lender, and we constantly evolve to find the best interest rate and policy for our clients.

Which bank has the cheapest interest-only investment property rate?

Without tooting our own horn, this is where mortgage brokers like Mint Equity are worth their weight in gold. In a price sensitive and constantly changing market, you need an expert to seek out the best deal for you. That’s where we come in.

With data feeds from over 40 lenders straight to our system, we can tell you exactly which lender has the best rate for your situation in a matter of minutes. Did we mention that our services are free of charge as we’re remunerated by the lender you choose? Well, we have now.

Here are our top fixed interest-only investment property rates based on an 80% LVR.

1 year fixed interest-only investment       4.24%

2 year fixed interest-only investment       4.19%

3 year fixed interest-only investment       4.39%

4 year fixed interest-only investment       4.59%

5 year fixed interest-only investment       4.49%