Investor lending in 2026: interest-only is back

After APRA's tighter caps in the late 2010s, interest-only loans are increasingly available again to qualified investors. The broker take on when IO actually makes sense.

Interest-only loans have been a much smaller part of the Australian mortgage market since APRA's caps tightened around 2017. They're now coming back into wider availability for qualified property investors, with most lenders offering 3-5 year IO terms on investment loans where serviceability is comfortable.

In our [live rate index](/home-loans/investor), the lowest tracked variable interest-only investor rate is currently around 5.49%, with most lenders sitting in the 5.7-6.4% range depending on LVR and structure.

What interest-only actually does

On an interest-only loan, you don't pay any principal — just the monthly interest. Your loan balance stays the same. After the IO period (usually 3 or 5 years) the loan reverts to principal+interest, and the repayments jump because you're now amortising over the remaining 25-27 years.

For an owner-occupier, this is rarely a good idea — you're paying for the home but not building equity in it. For a property investor, the math can work because the interest is tax-deductible and you can use the cash flow saving to either accumulate deposits for additional properties or hold against future rate moves.

How big a deal is it cash-flow wise?

On a $750k investment loan at 5.49%: - Principal+interest over 30 years: monthly ~$4,250 - Interest-only: monthly ~$3,430 - Cash flow saving: ~$820/month, or ~$9,840/year

For an investor servicing multiple properties, that cash flow saving is meaningful. For someone with a single investment property who isn't planning to expand the portfolio, it's usually not worth the eventual repayment shock.

When interest-only actually makes sense

Three scenarios where the math typically works:

1. You're actively building a portfolio and need the freed-up cash flow to service deposits + holding costs on additional purchases. 2. You're negatively gearing and want to maximise the deductible interest portion of your repayments for tax purposes. 3. You expect to sell the property within the IO window and don't want to pay down principal that you'll just convert back to cash on sale.

What you should do now

If you've never modelled IO vs P&I on your investment loan, talk to a broker — and to your accountant. The interaction between loan structure, depreciation, and your overall tax position is specific to your situation. Most general advice in this area is wrong because it ignores the tax interaction.

Use our [repayment calculator](/calculators/repayment) (set type to interest-only) to see what your repayments would be at different rates and balances.