What is interest-only?
An interest-only loan asks you to pay only the interest charge each period — the loan principal stays unchanged until the IO term ends, typically after 3-5 years, then reverts to principal-and-interest.
Interest-only (IO) repayments cover the interest cost only — the loan balance does not reduce. Most Australian IO loans run for 3-5 years before reverting to principal-and-interest amortisation over the remaining loan term.
IO lifts first-year cashflow because the principal isn't being repaid, which can suit investors banking on capital growth and using the deductibility of interest expenses against rental income. APRA restricts owner-occupier IO heavily, so most IO loans on the panel are investor-purpose.
Trade-offs: the rate on IO loans is typically 0.20-0.50% higher than the equivalent P&I product, and the P&I reversion afterwards compresses 30 years of principal into the remaining 25-27 years, lifting future repayments materially.
IO · interest only loan · interest only repayments
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General information only — not personal financial advice. Verified against https://ratesniffers.com.au/glossary on 2026-06-01.