Author: Xavier Quenon

SAVVY customers refinancing their home loans or fixing their interest rates are at an all-time high but there’s concerns many complacent borrowers are getting ripped off by their lenders. New Australian Bureau of Statistics data found in December nearly 21,000 Australians refinanced their mortgages to score a better deal — the highest level reached since 2010.

An interest-only home loan means you pay only the interest on what you’ve borrowed for a set period (usually one to five years), so your loan balance doesn’t go down. When that period ends, the loan switches to principal and interest, and your repayments step up.

That lower repayment is the appeal. It’s also where the risk sits, because the debt you start with is the debt you still owe on the day the interest-only period ends. Here’s how it plays out for Gold Coast buyers, investors and refinancers, with real numbers.

How Does an Interest-Only Home Loan Work?

Every home loan has two parts: the principal (what you borrowed) and the interest (what the lender charges you for borrowing it). On an interest-only home loan, your repayments cover just the interest for an agreed period.

So how does an interest-only loan work from month to month? Your lender charges interest on the full balance, you pay that interest, and the balance stays exactly where it started. If you pay extra, that extra goes against the principal.

What happens at the end of the interest-only period?

The loan reverts to principal and interest. You start repaying the amount borrowed plus interest, so your repayments increase. And because the same debt now has to be repaid over fewer years, the jump can be bigger than most people expect (the worked example below shows how much).

Are interest-only rates higher?

Usually, yes. The interest rate on an interest-only loan could be higher than on a P&I loan, which means you pay more over the life of the loan. Lenders also tend to check whether you can afford the higher repayments that follow, which can trim your borrowing power.

Do they still do interest-only home loans?

Yes. Interest-only lending is still a regular part of the market. APRA’s March 2026 property exposure statistics show that new interest-only lending accounts for around 22% of all new housing lending. Lenders do differ on how long the interest-only period can run, what rate they charge and who qualifies, which is why comparing across lenders matters.

Interest-Only vs Principal and Interest: A Worked Example

Here’s the same $600,000 loan over 30 years, set up two ways. The interest-only version runs for five years, then switches to P&I over the remaining 25 years. (If you want the detail on how repayments are split, we cover it in our guide to a principal and interest home loan.)

Illustrative rates only, not current offers. Figures assume the rate stays the same for the whole loan, which won’t happen in real life.

The interest-only borrower saves $447 a month for five years. Then the repayment jumps by $827 a month overnight. It also ends up $379 a month higher than the P&I borrower’s, because they’re repaying the full $600,000 over 25 years instead of 30, at a higher rate. Over the life of the loan, that’s roughly $87,000 more in interest. That’s the real trade-off in interest-only vs principal and interest: a lower repayment now for a higher one later.

Want to test your own numbers? Use our calculator to work out your repayments, or try Moneysmart’s interest-only mortgage calculator to see your repayments before and after the switch.

Pros and Cons of Interest-Only Loans

Who Does an Interest-Only Loan Suit?

An interest-only home loan works best when there’s a clear plan for the extra cash flow and the end date. Three groups tend to get the most from one.

Interest-Only Investment Loans

An interest-only investment loan is one of the most common ways to structure property investment loans. Investors choose them for the lower repayments and the way interest is treated at tax time.

The Australian Taxation Office (ATO) says you can generally claim the interest on a loan used to buy a rental property, but not the principal repayments. On an interest-only loan, your whole repayment is interest, so on a $600,000 loan at 6.30% that’s about $37,800 in the first year. If part of the loan is used for a private purpose, the interest must be split. The ATO’s rental interest example shows a $400,000 loan with $380,000 used for a rental and $20,000 for a car, so only 95% of the interest is deductible.

That’s also why redrawing from an investment loan for personal spending can cost you a deduction on that portion.

What changes from 1 July 2027?

The way an interest-only loan works doesn’t change. What changes is the tax value of the interest. The Treasury Budget 2026–27 summary and the ATO confirm these reforms, which the ATO says are now law:

• From 1 July 2027, negative gearing of residential property is limited to new builds.
• Properties held before 7:30pm AEST on 12 May 2026 are exempt from the negative gearing changes, and new builds can continue to be negatively geared.
• Investors who buy established housing after that time can still deduct losses against residential property income, including capital gains, and carry unused losses forward. They can’t deduct them against income like wages.
• The 50% capital gains tax discount is replaced by an inflation-based discount and a minimum 30% tax rate on gains, applying to gains accruing from 1 July 2027.

For an interest-only investment loan, cash flow becomes more important. If the loss can’t offset your salary, you need to be comfortable holding the property without relying on the tax outcome. We look at this in more detail in investing after the 2026 Budget. Go Mortgage doesn’t provide tax advice, so speak to a registered tax agent or accountant before you decide how to structure the loan.

What Happens When the Interest-Only Period Ends?

You have three options, and the earlier you look at them, the more choice you have.

• Switch to P&I. This is what happens automatically if you do nothing. You start repaying the principal and your repayment steps up.
• Extend the interest-only period. Some lenders will let you apply for another interest-only term. It’s not guaranteed: the lender reassesses your income, debts and the property, and your circumstances may have changed since you took the loan out.
• Refinance. Moving to another lender can give you a new interest-only period or a better rate. You’ll be assessed as a new borrower, and Moneysmart advises making sure the benefit is worth the switching costs.

Find out when your repayments will rise and by how much, then start paying extra before the switch. If the repayment is going up by $1,200 a month in a year’s time, that means putting in around $100 more each month from now. If you’re worried about affording the new repayments, talk to your lender early.

You Can Still Make Extra Repayments

This is the point that often gets forgotten. An interest-only loan sets a minimum repayment, but you can usually pay more. Extra repayments go straight against the principal, so they reduce your balance and your interest.

There are two advantages here: you decide how much extra to pay, not the bank, and on many variable loans you can redraw those extra repayments later, up to your original limit, without reapplying. Check your loan terms first. Many fixed-rate loans cap extra repayments, and redraw rules vary by lender. And if the loan is an investment loan, remember that redrawing for private use affects the deductible portion.

How Go Mortgage Can Help

Every interest-only home loan looks similar on paper, but they differ a lot between lenders: the rate, the maximum interest-only period, the fees, and how they treat an extension request. That’s where we come in. We compare interest-only rates across lenders, structure your loan around your goals, and map out what happens when the interest-only period ends, so there are no surprises.

FAQs

When it comes to your credit score, knowledge is power. Knowing your score and how it is calculated is the first step to improving it and ensuring it doesn’t have an impact on your investment plans.

What is a credit score?
A poor credit score can have implications for your home loan application – but many Australians don’t even know what a credit score is.

Mortgage lenders in Australia have access to a figure called a credit score or credit ranking, which is used in their assessment of your loan application.

It is determined by giving weight to a variety of different factors; including the number of credit enquiries you have made, your default history (including credit card and mortgage repayments), information about the credit cards you hold, your repayment history and any bankruptcy listings.

High outstanding credit card and loan balances will have an impact on your credit score, as will the amount of separate credit accounts you hold.

Will my credit score limit my borrowing ability?

A bad credit score can result in your loan application being rejected by a lender – a severe limitation on any property investment plans.

However, different lenders have different credit score requirements, and an application rejected by one lender due to a poor credit score may be accepted by another institution.

The downside of this is that the more rejected applications you accumulate, the worse your credit score may become.

I don’t know my credit score, how can I find it?

You have the right to gain access to your credit score in Australia, and finding out your credit score is a simple process. You can do this by contacting the relevant credit rating agency and getting a copy of your credit file.

In Australia, the credit reporting agencies are:
– Veda.com.au
– CheckYourCredit.com.au
– Dunn & Bradstreet

The Office of the Australian Information Commissioner can provide you with more information on accessing your credit score.

Can I improve my credit score?

Improving your credit score will involve hard work and plenty of patience – but it can be done.

You will need to carefully assess your financial situation, address your outstanding debts and create a realistic financial plan going forward.

Debt consolidation is key to improving your credit score. Taking up interest-free credit card transfers or low-interest loans may seem like a tempting solution to debt woes, but large amounts of outstanding debt will have a detrimental impact on your credit score – regardless of the repayment rate – as well as multiple credit card accounts.

It will help to put all of your financial outgoings and account balances into a combined document, so that you can create a budget that will allow you to save for life’s necessities while working to clear your debt.

Make sure you adhere to bill due dates. Late payments have a huge impact on your credit score, and getting on top of your regular repayment dates is the first step to improving your score.

It may seem obvious, but you should avoid taking on new debt if your credit score is already compromised. New phones or cars might seem like a good idea at the time, but they could drag your journey to a perfect credit score back months or years.

It is also possible for an overdue repayment or outstanding debt to be recorded on your credit score file mistakenly. If this is the case, you should get in touch with the credit reporting agency as soon as possible to have the mistake rectified.

It may pay to consult a professional, such as an accredited accountant or a Credit Repair company, for advice on establishing a financial plan to improve your credit score.

The amount of time it takes to improve your score will depend upon the precise circumstances of your negative credit history.

Identity information (such as your name and date of birth) remains on your credit report for the life of the file, but time frames for other articles of information vary (information sourced from veda.com.au):

Two years:
– Repayment history information

Five years:
– Any credit enquiry
– Overdue accounts listed as a payment default
– Overdue accounts listed as clearouts
– Writs and summons
– Court judgements

Seven years:
– Overdue accounts listed as a serious credit
– Infringement

You can improve your credit score in the following ways:
– Ensure you meet all loan repayments
– Create a budget incorporating outstanding debts and repayments
– Avoid taking on more debt
– Repay any outstanding debts and ensure that this is noted on your credit file
– Make sure no incorrect credit scores are recorded on your file (you can apply to have these corrected)

Can I get around a credit score?

Wondering whether you can get around your bad credit score? The short answer is NO – if you’re going through an official lender. If you want to invest in property within a short time frame it could be that you need to consider alternative strategies, like increasing your deposit so that your loan-to-value ratio is viewed more favourably by the lending institution.

Other than that, you may need to consider alternative purchase methods, such as vendor financing or investing in a property with a lending partner who has a good credit score. Both of these strategies carry significant risks and do not provide the same protections as a traditional lending channel, but may assist you to get into the property market sooner.

Now in its third consecutive year, the Better Business Awards forms part of the award-winning Better Business Summit, crowned Event of the Year at both the 2015 and 2014 Publishers Australia Excellence Awards.

Key to successful broking is building up a local presence and servicing clients in your immediate catchment area. Local area marketing is critical to truly excel, with several brokers clearly leading the way.

The Better Business Awards not only acknowledge those brokers who are leading the charge – those with the most effective businesses, talented team, marketing strategies and integrated offering – but also the lenders and aggregator BDMs that are best servicing brokers’ evolving needs.

Thirty-six brokers from across Australia are in the running to win five coveted state-based Best Residential Broker awards in 2016.

Other award categories will be fiercely contested as well and especially interesting will be the Best Loan Administrator Award. Often the unsung hero of any mortgage business, this award recognises the loan administrator in each state that has most effectively supported the broker or business in which he/she works for financial year 2015.

And at Go Mortgage we are proud to announce that we have placed a finalist in each of these prestigious categories. Xavier Quenon will be battling it out for a spot as the Best Residential Broker; whilst Leona Teal is in the running for the Best loan Administrator category.

The awards will be hosted as a dinner on conclusion of the Better Business Conference in Brisbane on the 18th February 2016

Our Top 100 Brokers report is just about to hit desks, and we are please to annouce that Xavier Quenon from Go Mortgage ranked in 70th place in the Top 100 Brokers 2015 – What a fantastic achievement.

The FAST Business Excellence conference rewards and recognises the highest achieving Residential Brokers from around the country.

During the 2015 conference, which took place in Vetnam’s bustling Ho Chi Minh city, we have had the opportunity to hear from banking industry experts, Layne Beachley – Officer of the order of Australia & 7 times world surfing champion – and Ben Roberts-Smith – Medal of Gallantry recipient, Victoria Cross recipient & all round Hero.

The FAST Business Excellence Conference saw the participants experiencing the best of Vietnamese culture as well as the French influence that remains in Vietnam today. This was accentuated during the Gala Awards dinner that took place in the majestic Park Hyatt Ballroom and where Xavier Quenon from Go Mortgage corporation proudly won the FAST Business Excellence award for QLD Residential Sole Operator.

This represents a great achievement and the valuable recognition of his industry and peers for delivering exceptional practice in mortgage and finance. The awards encourage members of the industry to constantly improve and strive for excellence. They recognise individuals and organisations that help the industry evolve through best practice and innovation.