Home Mortgage Interest Deduction Australia 2025 – Policy, Tips & What’s Changing

Thinking about buying a home or already paying off a mortgage in Australia? The concept of a home mortgage interest deduction is widely discussed, but 2025 is bringing new conversations about property tax policy, rising interest rates, and strategies for making your loan work smarter. Here’s what Australian homeowners and buyers need to know this year.

Is There a Home Mortgage Interest Deduction in Australia?

Unlike the United States, where mortgage interest is deductible on owner-occupied homes, Australia’s tax system is very different. Here’s the current reality:

• No Deduction for Owner-Occupiers: In Australia, you can’t claim a tax deduction on the interest paid for your primary residence. This policy remains unchanged in 2025.

• Investment Properties Are Different: If you own an investment property, the interest on your mortgage is tax-deductible as part of your negative gearing strategy. This is a key distinction for property investors versus owner-occupiers.

Calls for change occasionally surface, especially as mortgage stress rises. However, as of June 2025, there are no active proposals from the federal government to introduce a deduction for owner-occupied home loans.

2025 Policy Landscape: What’s New and What’s Not

With the RBA’s interest rate hikes over the past 18 months, mortgage repayments have soared for many Australian households. This has led to renewed debate about tax relief for homeowners, but here’s what’s happening now:

• Federal Budget 2025: The May 2025 federal budget offered no changes to mortgage interest deductibility for owner-occupiers, despite industry lobbying.

• Focus on Targeted Relief: Instead, the government has focused on targeted cost-of-living relief (e.g., energy rebates, rent assistance) rather than broad tax deductions for home loan interest.

• State Initiatives: Some states, such as Victoria and NSW, have increased first-home buyer grants and stamp duty exemptions, but not mortgage interest relief.

For property investors, negative gearing remains in place for 2025, allowing interest and other costs to be claimed against rental income. However, policymakers continue to debate the future of negative gearing, with some parties calling for reform to address housing affordability.

Smart Strategies for Homeowners in the Absence of a Deduction

With no mortgage interest deduction on the table, Australian homeowners are looking for other ways to manage rising repayments and maximise their financial position:

• Offset Accounts: Linking your home loan to an offset account reduces the interest you pay by offsetting your savings against your loan balance. This is a tax-effective strategy for owner-occupiers.

• Refinancing: With fixed-rate mortgages expiring, many lenders are offering competitive refinance deals in 2025. Shopping around could lead to lower rates and better features.

• Extra Repayments: Making additional payments, even small ones, can cut years off your loan and save thousands in interest—no tax deduction required.

• Government Grants: First-home buyers should check eligibility for the First Home Owner Grant, stamp duty concessions, and other state-based incentives.

• Budgeting for Rate Rises: The RBA has signalled that rates may stay higher for longer. Building a buffer now will help manage future increases.

For investors, it’s worth reviewing your loan structure and tax strategy with an accountant to ensure you’re maximising deductions under current rules.

Looking Ahead: Will Things Change?

Mortgage interest deductibility for owner-occupied homes is a political hot potato. Advocates argue it could ease mortgage stress, while critics say it would inflate house prices and cost billions in lost revenue. For now, the status quo remains—but it’s a debate that won’t go away, especially if household budgets remain under pressure into 2026.

For Australian homeowners and investors, understanding the current rules is crucial for making smart decisions. While you can’t deduct home loan interest on your main residence, there are still plenty of ways to get ahead—whether that’s through savvy loan management, taking advantage of government incentives, or making your property work harder for you.