Paying interest only is one of the best ways to manage your cash flow as an investor but is extending your interest only period possible?

When your IO does end, you’ll find your mortgage repayments will increase significantly, potentially preventing you from investing further.

Luckily, there is the option to extend your interest only period when it’s about to expire.

Should you extend your interest only period?

You should consider extending if:

  • You’re saving to buy more investment properties.
  • You’re diverting your money to pay off your car loan and credit card debts.
  • You haven’t yet paid off your home loan.
  • You’re in financial difficulty and would find it hard to make higher repayments.

You should consider paying principal and interest (P&I) if:

  • You’re not planning to buy any more investment properties.
  • You’ve already paid off your non-tax deductible debts such as your home loan and credit cards.
  • You’re in a strong financial position with excess cashflow.

15 years interest only? Really?

Yes, really! While most banks only allow you to pay interest only for 5 years, there are others that allow interest only home loans for up to 15 years!

  • Fix for up to 15 years.
  • Switch back to principal and interest at any time.
  • Make extra repayments with no limitations.
  • Great professional package discounts are available.

If you’d like to find out more about long term interest only periods then call our mortgage brokers on 1300 889 743 or fill in our free assessment form.

Will having interest only loans reduce my borrowing power?

Yes. Interest only repayments will reduce your borrowing power with some lenders. This is because they calculate your serviceability based on the repayments after your interest only payments end.

In other words, on a 30-year loan with a 10-year interest only period they’ll be assessing your ability to pay the loan back over 20 years!

There’s an easy way and a hard way to apply for it

In some cases, your lender can extend your interest only period over the phone, via your mortgage broker or by you filling in a form. They don’t need to reassess your full situation.

However, if you don’t meet certain bank criteria then you’ll need to submit a full application for the bank to assess. That means proving your income and in some cases providing statements for your other debts.

Most banks require a full assessment if you’re asking for an extension for more than 5 years or your loan will have more than 10 years in total with interest only payments.

How to do a quick extension

Firstly, call us on 1300 889 743 and we can let you know if you’re eligible. Yes, you can call us even if you didn’t use us as your mortgage broker and we’ll help you free of charge.

We can then send you a form to sign to extend your interest only period. With some banks, we may just call them or ask you to complete a section in their internet banking.

How to do a full assessment

If you aren’t eligible for a quick extension then you’ll need to do an internal refinance. That means we’ll need your payslips and a couple of other documents and will be submitting a full loan application.

Your loan term will normally be extended back out to 30 years but you can choose not to do this if you’d prefer to keep your original loan term. Your interest only period will also be extended when the assessment is complete.

What if my bank won’t extend my interest only term?

Don’t worry, there are other lenders who can help.

Call us on 1300 889 743 or fill in our free assessment form and we’ll let you know what options are available.

Why might the bank reassess my loan?

  • You’re asking for an extension of more than 5 years.
  • Your loan will have interest only repayments for more than 10 years in total.
  • You’ve been missing payments or have made a payment arrangement with the bank.
  • Your home loan is owner occupied (not for investment purposes).

What if my home loan is fixed and interest only?

Many investors combine an interest only period with a fixed interest rate. Since most banks require the term of the interest only period and fixed rate to be the same it’s quite likely that your fixed rate is also expiring.

You can read our page on what to do when your fixed rate expires for more information.

What fees do banks charge to extend?

In most cases, there are no fees for home loans that are under a professional package. However, there are small fees of approximately $300 for basic loans.

How do I switch from interest only to P&I?

Often, you can simply call the bank and ask them to increase the size of the direct debits being made from your bank account.

Technically, your mortgage is still interest only because the minimum payments are just the interest. However, in practice, you’re making repayments as if you were paying off a P&I loan. Doing it this way helps you avoid bank fees for switching loan types.

Are interest only repayments only for investment properties?

It can be difficult to get approved for interest only repayments for a home loan that isn’t for investment purposes.

Why? APRA is concerned about the lending practices of the banks and, under the NCCP Act, it could be argued that interest only repayments aren’t always suitable for “owner occupied” home loans.

If you have a good reason to have interest only repayments then call us on 1300 889 743 or fill in our free online assessment form and we’ll see if you qualify.

  • Sierra

    It may seem like a good idea at first (cashflow wise) but if you pay interest only, you’ll definitely be paying more overall… so finding a good balance is what you would want.

  • Hi Sierra,

    Thanks for your comment. You’re right. A good balance is definitely essential and you can get towards it by discussing your goals and plans with a mortgage broker as well as a professional financial advisor.

  • Doris

    Is it possible to refinance if I have missed a couple of payments on my home loan and the lender is taking legal action? We’re working things out though.

  • Yes, you can generally borrow up to 75% of the value of your property with a specialist lender. However, please note that you must prove that you’re no longer in financial trouble.

  • Skidmore

    I would like some clarification on the rate at which the lenders assess my borrowing capacity. Will it be the same as that of my debts or different?

  • Hey Skidmore,

    Most banks don’t calculate your borrowing capacity using the actual rate that you are paying. They add up to 2% to the current rate to make sure you can afford the loan if the rate were to increase. However, note that some lenders won’t use the higher rate when assessing your loan or will use the actual rate if your loan is fixed for more than 3 years.

  • Jordan

    Hi, I’m in search of a good deal with a minimum of 5 yrs. interest only home loan for an owner occupied property. I want flexibility and extra repayments option. Is this something you can help with?

  • Hi Jordan,
    Yes, absolutely. For owner occupied properties with 5 years interest only term you can borrow up to 80% LVR. Keep in mind that there are only a few lenders that will allow you to make large extra repayments. Please fill in our online assessment form: and one of our specialist mortgage brokers will help you find the right solution for your needs.

  • Summer

    Hi, I own an investment property and the fixed term (principal and interest) is coming to an end next month. With interest rates cuts making the news, I’m considering refinancing to interest only but I’m open to P&I as well. Which is a better choice?

  • Hi Summer,
    That’s right, we’re seeing interest rates cuts across the board for investors. The cost of interest only loans have come down as well. The variable interest rate you can get is around 4.09% now and for fixed-rates, it can be as low as 3.69% (3 years fixed interest only). With interest rates falling further due to RBA’s cash rate cut. Just keep in mind that if you choose interest only then you end of paying more in interest over 30 years and you usually have a lower borrowing power. It’s a good idea for some people to choose interest only on your investment loans and then you can put all your spare money to paying off your home loan which is not tax deductible.