With ANZ and TSB changing their policies to offer up to 10 years of interest-only repayments, many property investors are rethinking their loan strategy. Here’s how interest-only lending works and why it could strengthen your long-term investment plan.
An interest-only loan means your repayments cover only the interest on your mortgage, not the principal. This keeps monthly payments lower and frees up cashflow for other priorities.
For example, on an $800,000 investment loan at 5 percent interest over 30 years, an interest-only loan costs about $3,333 per month, compared with around $4,295 on a standard principal-and-interest loan. That difference of roughly $960 per month can make a meaningful impact on rental yield and flexibility.
During the interest-only period, your loan balance doesn’t reduce, but the lower repayments can improve cashflow and create more flexibility. The principal can be repaid later, refinanced, or cleared when the property is sold.
ANZ and TSB recently extended their policies to allow up to 10 years of interest-only repayments for eligible investors. Previously, most banks capped terms at five years. This longer term gives investors greater certainty and flexibility.
Being able to secure 10 years of interest-only gives investors more flexibility to manage cashflow, smooth rental returns, and handle rising costs such as rates and insurance. By being able to secure this structure for longer, it provides certainty even if future circumstances change. Bank policies and lending criteria can tighten over time, and it may be harder to extend an interest-only term if your income drops, regulations shift, or new affordability tests apply, therefore being able to lock in 10 years can provide stability and helps future-proof investment plans.
Interest-only loans can be a useful tool for property investors when used strategically. The main reasons investors choose this structure include:
From a financial-planning perspective, it can make sense for investors to avoid paying off tax-deductible investment debt too quickly. In many cases, investors are better off focusing on repaying non–tax-deductible personal or owner-occupied debt first, such as their home mortgage. This can reduce overall interest costs while keeping the advantages of deductible investment interest intact.
Used strategically, interest-only lending can help investors manage portfolios more proactively rather than reactively.
However, while there are benefits to considering interest only terms, it is important to note that when these end, the loan will typically switch to principal-and-interest repayments. Because the remaining principal must be paid off over a shorter period, repayments increase – unless the property is sold, refinanced or restructured.
Other trade-offs can include:
This is why an interest only approach works best as part of a clear, long-term investment strategy rather than a default setting.
Another point it is important to note when considering interest only repayments is that banks typically take a close look at the reasons behind an interest only application. You’ll need to show that the structure supports a sound investment plan, not just short-term relief.
Most lenders will require:
These checks ensure investors can manage the loan responsibly through all stages of the property cycle.
With some banks extending interest-only terms to 10 years, investors now have more choice and flexibility. This means that it could be the ideal time to review the lending structures of your property portfolio and align them with broader investment goals.
The key is balance: understanding your objectives, reviewing your numbers, and ensuring your loan set-up genuinely supports your long-term strategy.
If you’d like to explore the optimal structure for your property portfolio, book a complimentary property finance review today. Our advisers can model the options and show how they impact cashflow, repayments, and tax outcomes. Plus, for every review completed this month, you’ll go in the draw to win $5,000 cash – yours to spend, save or invest as you like! Click here to book.
The content of this article should not be taken as financial advice, or a recommendation of any financial product. These insights are based on current economic commentary, market pricing for interest rates, and our personal opinion. Threefold is not liable or responsible for any information, omissions, or errors present.