Loan types
Interest only — lower payments, no principal
With an interest-only loan, your repayments cover the interest and nothing else. You're not paying down the amount you borrowed. It keeps payments low — but you're not building equity either. The loan balance stays the same until you switch to principal and interest.
How it works
On a $500,000 loan at 6%, you'd pay roughly $577 per week in interest only — compared to about $720 per week on principal and interest over 30 years. That's a meaningful difference in cashflow.
Banks typically approve interest-only for set periods — often 1 to 5 years — then review. For owner-occupiers, most banks cap interest-only at 5 years total. For investors, they may allow longer, but the rules have tightened.
When the interest-only period ends, you switch to principal and interest— and your repayments jump because you're now paying down the balance over a shorter remaining term.
Who it suits
- —Property investors who want maximum cashflow and can claim the interest as a tax deduction
- —People in a temporary tight spot — new baby, job change — who need lower payments for a defined period
- —Those building a new home who want low payments during the construction phase
- —People planning to sell within a few years who don't need to build equity
Pros and cons
Pros
- Significantly lower repayments
- Frees up cashflow for other investments or expenses
- Interest is tax-deductible for rental properties
- Useful as a short-term strategy during life transitions
Cons
- You don't build any equity — the balance never goes down
- Banks limit how long you can stay interest-only
- Harder to get approved for owner-occupiers (banks prefer P&I)
- When it ends, the jump to P&I payments can be a shock
The investor angle
For property investors, interest-only used to be the default strategy: keep payments low, claim the deduction, and rely on capital growth. The interest deductibility rules changed in 2024 — existing properties lose deductibility over time, while new builds retain it. This changes the maths significantly.
We work with your accountant to figure out whether interest-only still makes sense for your specific portfolio, given the current tax settings.
Is interest only right for you?
It depends on whether you're investing or living in it, how long you need the lower payments, and what your bank will approve. We'll map it out.
