Many Australian homeowners are sitting on plenty of equity while their monthly cash flow feels stretched. A no monthly payments home loan is one way to access that equity without adding another regular repayment.
That sounds appealing, so the obvious question is: what’s the catch? There’s no trick, but there are real costs. Interest and fees still build up, and the balance you repay at the end can be much larger than the amount you borrowed. This guide explains how the loan works, what you’d repay, who it may suit and the questions to ask before you decide.
What is a no monthly payments loan?
Home equity is the difference between your property’s value and the amount you currently owe against it. A no monthly payments loan lets you borrow against that equity without making regular monthly principal or interest repayments during the life of the loan.
The loan may be structured as a first mortgage, which can replace an existing home loan, or as a second mortgage that sits behind an eligible current loan. It can be used for one purpose or a combination of eligible financial needs.
How it works
1. You borrow against your property. You borrow an approved amount using the available equity in your home.
2. There are no regular monthly payments. You don’t make regular monthly principal or interest repayments during the life of the loan.
3. Simple interest applies. Interest is calculated on the amount you originally borrowed, not on interest that has already been added. That’s different from compound interest, where interest is charged on top of interest.
4. You repay when an agreed event occurs. There’s no fixed loan term, but the loan is generally repaid when you sell, refinance or choose to repay, or when another repayment event in the contract occurs.
What you’ll repay
This is the part to read carefully. Having no monthly payments doesn’t mean having no costs. Interest and other costs still accrue, and the amount payable at the end may include:
| Part of the balance | What it is |
|---|---|
| Original loan amount | The amount you borrowed |
| Accumulated simple interest | Interest added over time, calculated on the original amount |
| Lender fees and charges | The applicable fees on the loan |
| Deferral fee, where applicable | A fee linked to an agreed share of any increase in your property’s value |
Because the balance grows over time, the equity left in your home can shrink. The longer the loan runs, the more it can grow, so it’s worth asking for projections of what the balance could look like in five, ten and fifteen years. An hfinance broker can explain the costs and model how the balance may change.
What people use it for
Funds may be used for one purpose or a combination of eligible needs. Common uses include:
- Reducing or replacing an existing mortgage
- Consolidating debts such as credit cards, personal loans or tax debts
- Renovating, extending or making accessibility changes to your home
- Investing in property, such as a deposit, purchase costs or improvements
- Funding a deposit, stamp duty or the gap between properties when buying your next home
- Helping family members with a property deposit or education costs
- Starting or growing a business, including equipment, vehicles or working capital
- Managing a separation, including settlements, legal costs or keeping the family home
- Paying education costs
- Meeting personal expenses such as medical treatment, home modifications or ongoing care
Who it may suit
This type of lending may be worth considering if you:
- Have substantial equity in your property
- Want to access funds without selling your home
- Want to avoid another regular monthly payment
- Are limited by traditional income-based borrowing requirements
- Want to improve cash flow or fund a major expense
Approval remains subject to eligibility, property requirements, credit assessment and responsible lending obligations.
Questions to ask before you decide
A good broker will welcome these. Ask for the answers in writing.
- What is the interest rate, and how is the simple interest calculated?
- What are all the fees and charges, including any paid up front and any paid at the end?
- How is the deferral fee worked out, and does it apply to my loan?
- Which repayment events apply? What happens if I sell, refinance or want to repay early?
- Can I make voluntary repayments if my situation changes?
- What will the balance be after five, ten and fifteen years? Ask to see projections for different property values.
- How could the loan affect my future borrowing, my estate and any government payments I receive?
Other options to consider
Equity release isn’t the only way to find money, and it isn’t right for everyone. ASIC’s MoneySmart notes that over time debt on equity release products grows and equity decreases, and it suggests looking at other options first. Depending on your situation, they can include:
- Refinancing or increasing an existing home loan, which comes with regular repayments but may suit your budget better
- Selling and downsizing, though you’d need to weigh up the costs of selling and buying
- Checking your eligibility for government support, such as the Age Pension or other benefits
- A no interest loan for a small amount to cover essentials such as car repairs
MoneySmart has a guide to reverse mortgages and home equity release and a calculator that shows how home equity may change over time.
Common questions about no monthly payments loans
Do I pay interest? Yes. Interest accrues on the loan, even though you don’t make regular repayments. It’s calculated as simple interest on the original amount borrowed and added to the balance.
Do I have to repay it? Yes. The loan is repaid when an agreed repayment event occurs, such as selling your home, refinancing, choosing to repay, or another contractual event.
How long can I have the loan? There’s no predetermined end date, but the repayment events in your contract still apply.
Is it the same as a reverse mortgage? They share the idea of accessing equity without regular repayments, but the details can differ between products and lenders, including who can borrow, how interest is calculated, the fees and the protections. Ask your broker to explain how a product compares.
Can I use it to buy an investment property? Funds may be used for eligible purposes, including property deposits, purchase costs or improvements. Your broker can explain what’s eligible.
Will it use up the equity in my home? It can reduce the equity you have left, because the balance grows over time. That’s why projections matter.
Talk to an hfinance broker
The hfinance team compares options across 50+ lenders, and can explain the costs of a no monthly payments loan and model how the balance may change over time. Learn more on our home equity release page, or book a call to talk through your situation.
This article is general information only and does not take into account your personal financial situation or objectives. Equity release involves interest, fees and charges, and the amount owing grows over time and reduces the equity in your property. Approval is subject to eligibility, property requirements, credit assessment and responsible lending obligations. Speak with an hfinance broker, and consider independent financial and legal advice, before making any decision.