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An interest only loan is exactly what it sounds like. For a set period, your repayments cover only the interest charged on your loan amount, not the principal. Your balance stays the same during that time, but your monthly payments are lower. For the right borrower in the right situation, that difference in cashflow can matter quite a lot.
At Zella Money, we work with a lot of property investors who use interest only repayments as part of a deliberate investment strategy. It is not a product for everyone, and it is definitely not something to set and forget. But when it fits, it fits well.
How interest only repayments actually work
With a standard principal and interest loan, every repayment chips away at what you owe while also covering the interest charged. With an interest only loan, you are only paying the interest component for the duration of the interest only period. The loan balance does not reduce during that time.
Once the interest only term ends, your loan reverts to principal and interest repayments. Because you now have a shorter remaining loan term to repay the same original balance, your repayments will increase. This is sometimes called interest only repayment shock, and it catches people off guard when they have not planned for it. At Zella Money, we make sure our clients understand exactly what happens at the end of the interest only period before they commit to anything.
How long can an interest only period last?
Most lenders will offer a 5 year interest only term as standard, with some allowing up to a 10 year interest only period depending on the loan type and your circumstances. The maximum interest only term available to you will depend on your lender, your loan to value ratio (LVR), and how your application stacks up from a serviceability perspective.
Interest only LVR requirements tend to be stricter than those for principal and interest loans. Many lenders cap interest only lending at a lower LVR, which means you may need more equity or a larger deposit to be eligible. Interest only eligibility and interest only serviceability assessments are also assessed differently by different lenders, which is one of the reasons having a broker in your corner makes a real difference.
Why investors use interest only loans
The most common reason people look at an interest only mortgage is for an investment property. When a loan is used to generate income, the interest component may be tax deductible. That means keeping repayments as interest only could potentially maximise the tax deductible interest on your investment loan, which is worth discussing with your accountant.
Beyond the potential tax benefits, interest only repayments also help investors maximise cashflow. Lower payments each month mean more money available to cover holding costs, contribute to another property, or simply maintain a comfortable financial buffer. For investors focused on expanding their property portfolio, that flexibility can be genuinely useful.
None of this is financial advice, and whether interest only works for your situation depends entirely on your numbers and your goals. What Zella Money can do is help you understand your options, access loan options from banks and lenders across Australia, and find a structure that makes sense for where you are headed.
Interest only vs principal and interest
The interest only vs principal and interest question comes up constantly, and the honest answer is that neither is universally better. Principal and interest loans build equity faster and cost less in total interest over the life of the loan. Interest only loans reduce monthly payments in the short term and can support cashflow-focused investment strategies.
If you are an owner-occupier, interest only is generally harder to justify because the interest is not tax deductible and you are not building equity in your home. If you are an investor with a clear strategy and a plan for what happens when the interest only period ends, it can be a sensible tool.
Some borrowers also look at an interest only refinance when their circumstances change, or they want to switch to interest only on an existing loan to free up cashflow during a particular period. Others want to renew interest only or apply for an interest only extension when their current term expires. These are all conversations worth having with a broker who understands how lenders assess these requests.
What to think about before applying
Calculating interest only repayments is straightforward. You take the loan amount, multiply by the interest only interest rate, and divide by twelve. What is less straightforward is understanding how your repayments will change when the interest only term ends, and whether your financial position will support that shift.
The interest only buffer that lenders apply during serviceability assessments is designed to account for this. Lenders want to know you can manage the higher principal and interest repayments that will eventually kick in, not just the lower interest only repayments you will be making now.
At Zella Money, we help clients think through the full picture, including variable interest rate and fixed interest rate options, interest only rates across different lenders, and what your repayments will look like at every stage of the loan. We access loan options from banks and lenders across Australia to find structures that suit your investment strategy, not just your immediate cashflow needs.
If you are thinking about an interest only home loan for the first time, or you are an existing investor looking to refinance your investment loan, we would love to have a proper conversation about what makes sense for you.
Getting a home loan can feel overwhelming. It doesn't have to be. At Zella Money, we've built a process that keeps you informed, supported, and confident at every step. Here's how we work together.
Let's Have a Chat: Everything starts with a conversation. We take the time to understand where you are right now, where you want to go, and what matters most to you. No pressure, no jargon. Just an honest discussion about your situation and your goals.
We Dig Into the Detail: Once we know what you're working towards, we take a closer look at your finances. Income, expenses, savings, existing debts. We look at the full picture so we can give you advice that's actually relevant to your life, not just a generic answer.
We Research the Market: With a clear picture of your situation, we search across a wide panel of lenders to find options that genuinely suit you. We're not tied to one bank or one product. Our job is to find the right fit, not the easiest one.
We Walk You Through Your Options: We present a shortlist of suitable loan options and explain each one in plain language. Rates, fees, features, flexibility. We cover it all so you can make a decision you feel good about. No hard sell, ever.
We Handle the Application: Once you've chosen the loan that works for you, we take care of the paperwork. We prepare and lodge your application, liaise with the lender, and keep things moving. You don't need to chase anyone.
We Keep You in the Loop: From application through to approval, we stay in regular contact. You'll always know where things stand. If the lender needs anything extra, we handle it quickly and let you know what's happening and why.
Settlement and Beyond: Approved and settled? We're still here. We check in after settlement to make sure everything's running smoothly, and we stay available as your circumstances change. One loan is just the beginning.
Ready to talk to the team? We're excited to meet you! Shoot though an enquiry and we'll get back to you ASAP!
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We used Jaclyn the Senior Finance Broker to buy our first home and she was amazing! She is so knowledgeable, made us feel valued and turned our dream into a reality. Can not recommend her enough! Shout out to Sal as well the Settlements Manager who helped make settlement nice and simple.
Chris Fallon
I cannot recommend Zella highly enough! Charlotte and the wider Zella team were with us every step of the way! They truly had our backs in securing the best home loan for our family. Prompt, informative and easy to deal with! Thank you so much for all your hard work!! xx
Olivia Jolliffe
I had a great experience with Zella from start to finish. The team was friendly and made our refinance super easy. Highly recommend!
Casey Sharrock
Huge thanks to Tara and her team! Highly recommend !
Maddie B
Bought my first home through Zella and so so glad I did! Georgia was extremely helpful from the start and patient with answering all of my stupid questions. Thank you again for everything!
Christine Untario
I really appreciated working with the team. They were really efficient, no question went unanswered and they were lovely to work with. I felt in good hands!
Jane Eldershaw
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For most standard lending appointments, no. We're paid by the lender once your loan settles. In rare cases where applications are highly complex, a fee may apply, but we'll always discuss and disclose this with you upfront.
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Absolutely. We assist clients across Australia and have a thorough understanding of different state and territory regulations, grants and incentives.
We keep communication clear and simple. Your broker will be available via email and phone, and we manage documentation securely through our electronic portal. Your initial meeting can be held over the phone or by video call, depending on your preference. We're always just a message away if you need support.
To get started, we'll need documents such as identification, proof of income (like payslips or tax returns), details of your assets and liabilities, and statements for any existing loans or credit facilities. Your broker will give you a personalised checklist so you always know what's needed.
Your borrowing capacity depends on factors like your income, expenses, existing debts, credit history and the policies of individual lenders. We'll work with you to assess your position and give you a clear understanding of what's achievable.
Yes. Our brokers stay across all available incentives, including first home buyer grants, stamp duty concessions and guarantee schemes. If you're eligible, we'll help you understand how to apply and make the most of these opportunities.
Absolutely. We specialise in guiding first-home buyers through the process with tailored advice, clear communication and plenty of support along the way.
Banks offer their own products. We offer you options. As your broker, we take the time to understand your goals and financial circumstances before searching across a broad panel of lenders to find solutions that genuinely suit you. We also stay across the latest policies, grants and niche lender options that could make a real difference to your outcome.
We conduct a credit check early in the process to help us best assist you. Your score is safe with us. If you have any concerns about your credit history, please speak with your broker — we're here to support you.
Pre-approvals generally last between three and six months, depending on the lender. We'll guide you through the timeline and help you refresh your approval if your property search takes a little longer than expected.
Once your loan is formally approved, we'll guide you through the settlement process. We work closely with your solicitor or conveyancer to ensure all requirements are met and everything runs smoothly right through to settlement day.
Definitely. We understand the nuances of self-employed income and have extensive experience presenting applications for business owners in a way that resonates with lenders.
No. In addition to home loans, we also assist with commercial lending, investment loans, refinancing and asset finance. Whatever your finance goals, we're ready to support you.
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