Change Home Loan – Regain Control When Banks Say No

As you navigate the complexities of managing a home loan, you may find yourself considering the option of switching to an interest-only payment structure. This can be an attractive strategy for some homeowners, offering reduced monthly payments and freeing up cash flow for other financial goals. But how feasible is it to make this change, and what should you consider before taking the plunge?

Understanding Interest-Only Home Loans

Interest-only home loans allow borrowers to pay only the interest on the loan for a specified period, typically ranging from 1 to 5 years. During this time, your monthly repayments are significantly lower compared to a principal-and-interest loan. However, once the interest-only period ends, your payments will increase as you begin repaying both the principal and interest.

In Australia, interest-only loans have been popular among investors aiming to maximise tax benefits while maintaining a positive cash flow. For owner-occupiers, the motivation might include managing short-term financial pressures or allocating funds towards other investments.

Current Market Information and Requirements

As of 2026, interest-only home loans are available across a variety of lenders, with interest rates typically ranging from 6.49% to 8.5%. These rates can vary based on the lender, your financial situation, and the terms of the loan.

Eligibility criteria for switching to an interest-only home loan generally include:

• Demonstrating the ability to meet the higher repayments when the interest-only period ends.
• A satisfactory credit history and credit score.
• Sufficient equity in your property, often a minimum of 20%.

It's essential to understand that not all lenders offer the flexibility to switch to an interest-only structure once the loan is established. However, with access to over 83 lenders, Esteb and Co can help you explore your options effectively.

Lender	Interest Rate Range	Interest-Only Term
Lender A	6.49% - 7.5%	Up to 5 years
Lender B	6.75% - 8.0%	Up to 3 years
Lender C	7.0% - 8.5%	Up to 4 years

Steps to Change Your Home Loan to Interest Only

If you've decided that switching to an interest-only home loan is right for you, follow these steps to make the transition:

1. Review Your Current Loan Terms: Understand the terms of your current loan, including any exit fees or conditions for changing the loan structure.
2. Assess Your Financial Situation: Ensure you can manage the future increase in repayments once the interest-only period ends.
3. Consult With a Mortgage Broker: Leverage the expertise of Esteb and Co to navigate your options with over 83 lenders.
4. Submit an Application: If your current lender allows, apply for a change in your loan structure. Alternatively, consider refinancing with a new lender.
5. Approval Process: Be prepared for a thorough assessment of your financial situation by the lender.
6. Finalise the Change: Once approved, review the new loan agreement carefully before signing.

Tips and Considerations

Before making the switch, consider the following expert tips:

• Plan for the Future: Make sure you have a strategy in place for when the interest-only period ends. This might include increasing your income or adjusting your budget.
• Understand the Costs: Interest-only loans can be more expensive over the life of the loan. Ensure you weigh the short-term benefits against long-term costs.
• Stay Informed: Keep abreast of market changes, as interest rates can fluctuate, impacting your repayments.
• Consult Professionals: Always seek advice from a qualified mortgage broker or financial advisor to ensure your decision aligns with your financial goals.

Frequently Asked Questions

1. Can I switch to an interest-only loan if my financial situation changes?

Yes, but you will need to demonstrate your ability to meet future repayments and satisfy lender criteria.

2. Will my interest rate change if I switch to interest-only?

Potentially, as interest-only loans often come with different rates. It's important to compare offers across lenders.

3. Is there a risk of not being able to switch back to principal and interest?

While uncommon, changes in lending policies or your financial situation could affect your ability to revert to a principal and interest loan.

4. How does switching affect my loan term?

Switching to interest-only temporarily pauses principal repayments, which could extend the overall loan term if not managed properly.

5. Can I make extra repayments during the interest-only period?

Many lenders allow extra repayments during the interest-only period, which can help reduce the principal once the interest-only term ends.

6. Do all lenders offer the option to switch to interest-only?

No, options vary by lender. Consulting with a mortgage broker like Esteb and Co can help you identify suitable lenders.

7. Is an interest-only loan right for me if I'm an owner-occupier?

It depends on your financial goals and situation. Interest-only loans can provide short-term relief but may not be suitable for everyone long-term.