Approved period
Interest-only terms are limited and lender-specific. Extending the period later requires a new assessment and is not guaranteed.
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Interest-only investment loans · Victoria
Understand the full cost of an interest-only investment loan
An interest-only period can change short-term cash flow, but it does not remove the principal. Compare the rate, term, later repayments and total interest before choosing the structure.
Interest-only options explained clearly
The short answer
What is an interest-only investment loan?
During the approved interest-only period, scheduled repayments generally cover interest and applicable fees rather than reducing principal. When the period ends, the remaining balance is repaid over the shorter residual term, which can produce a material repayment increase.
Model before you commit
Lower initial repayments do not mean lower total cost
The structure may suit a considered cash-flow plan, but only when the borrower understands reversion, pricing, serviceability and the risk that circumstances or property income change.
- Compare the interest-only rate and fees with principal-and-interest alternatives
- Calculate the repayment after the interest-only period ends
- Model total interest over the intended holding period
- Confirm whether offsets, extra payments and early conversion are available
Reversion repayment
After the period ends, principal is repaid over the remaining loan term. The scheduled repayment can rise even if the interest rate is unchanged.
Pricing
Interest-only investment rates may be higher than equivalent principal-and-interest pricing. Product fees and package costs also matter.
Tax is separate
Loan repayment type does not determine tax deductibility by itself. The use of borrowed funds and current tax law matter; obtain qualified tax advice.
Compare the structure
Compare both repayment paths before applying
A side-by-side model makes the trade-off visible and helps test whether the later principal-and-interest repayment remains affordable.
Decision point
Principal and interest
Interest-only
Principal
Reduces with each scheduled repayment.
Usually remains unchanged during the interest-only period.
Initial payment
Usually higher under the same rate and term.
Usually lower during the approved period.
Later payment
Follows the normal amortisation path.
Can rise when principal must be repaid over the remaining term.
Risk test
Focus on rate changes and ongoing affordability.
Also test reversion, renewal risk and a higher principal at sale or refinance.
How it works
A lending plan built around the whole portfolio.
- 01
Define the investment purpose, expected holding period, cash-flow needs and intended exit from interest-only.
- 02
Compare rates, term, reversion repayments, total interest, features and lender policy.
- 03
Choose a suitable structure and review it before the interest-only period expires.
Common questions
Clear answers for Victorian property investors
How long can an interest-only period last?
Available periods vary by lender and application. A further interest-only term is not automatic and normally requires reassessment.
Are interest-only investment rates higher?
They may be. Pricing depends on lender, LVR, loan size, product and market conditions. Compare the actual offer and total cost.
What happens when interest-only ends?
The loan generally converts to principal-and-interest repayments over the remaining term. This can substantially increase the scheduled payment.
Can I make extra repayments during an interest-only period?
Some variable products permit extra repayments or offset balances, while fixed products may impose limits. Product terms need to be checked.
Is interest on an investment loan tax deductible?
Deductibility depends on how borrowed funds are used and the tax rules applying to your circumstances—not simply the repayment type or property offered as security. Ask a registered tax agent.
Reviewed 14 September 2026 by Chris Berry. General information only and not financial, investment, legal, tax or accounting advice. Lending criteria, rates, fees, valuations, rental-income treatment and tax outcomes vary. Loan approval and future investment performance are not guaranteed.
Official information: Moneysmart property investment guidance · ATO residential rental property guidance · Consumer Affairs Victoria buying guidance
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