Interest Only Loans – Hope for Homebuyers (2026)

If you're considering an interest-only loan in Australia, you're likely wondering if it's still possible to secure one in the current market landscape. With changing regulations and economic conditions, understanding your options can feel overwhelming. The good news is, interest-only loans are still available, but they come with specific conditions and considerations that you need to be aware of.

Understanding Interest-Only Loans

Interest-only loans are a type of mortgage where you only pay the interest on the loan for a set period, typically between 1 to 5 years. During this time, your monthly repayments are lower since you're not paying down the principal. However, once this period ends, your repayments will increase as you begin paying off both the interest and the principal amount.

These loans can be beneficial for investors looking to maximise their cash flow, or for homeowners wanting to reduce their short-term outgoings due to other financial commitments. However, they require careful planning to ensure you can manage the higher repayments once the interest-only period concludes.

Current Market Rates and Requirements

As of 2026, interest-only loans are available through a variety of lenders, including major banks and smaller financial institutions. Here's a breakdown of what you can expect in the current market:

Eligibility criteria for interest-only loans can be more stringent than for principal and interest loans. Lenders typically require:

• A strong credit history
• A stable income
• A clear financial plan demonstrating how you will manage the higher repayments after the interest-only period
• In some cases, a higher deposit

Esteb and Co, with their access to 83+ lenders, can help you navigate these requirements and find a suitable loan product that fits your financial situation.

Steps to Secure an Interest-Only Loan

Securing an interest-only loan involves several key steps:

1. Assess Your Financial Situation: Evaluate your income, expenses, and financial goals to ensure an interest-only loan aligns with your objectives.
2. Research Lenders: Compare different lenders to find competitive rates and terms. Consider seeking assistance from a mortgage broker like Esteb and Co for personalised guidance.
3. Prepare Your Documentation: Gather necessary documents such as income statements, tax returns, and bank statements.
4. Submit Your Application: Complete the application with your chosen lender, ensuring all information is accurate and complete.
5. Review Loan Terms: Carefully review the loan terms offered, paying attention to interest rates, fees, and the transition to principal and interest repayments.
6. Plan for Future Repayments: Develop a financial plan to manage higher repayments after the interest-only period ends.

Expert Tips and Considerations

Taking out an interest-only loan is a significant financial decision. Here are some expert tips to consider:

• Have a Clear Exit Strategy: Know how you plan to manage the increased repayments after the interest-only term.
• Consider Refinancing Options: Keep an eye on the market for opportunities to refinance to a better rate or terms.
• Factor in Potential Interest Rate Changes: Be prepared for possible interest rate increases that could affect your repayments.
• Consult with a Professional: Working with a mortgage broker like Esteb and Co can provide access to a wide range of lenders and tailored advice to suit your needs.

Frequently Asked Questions

• Can I switch from an interest-only loan to a principal and interest loan?
  Yes, most lenders allow you to switch to a principal and interest loan. It's advisable to consult with your lender or broker for specific terms.
• Are interest-only loans more expensive in the long run?
  Potentially, yes. Although initial repayments are lower, you may pay more interest over the life of the loan.
• Is it harder to qualify for an interest-only loan?
  Interest-only loans do have stricter eligibility criteria, including a strong credit history and a solid repayment plan after the interest-only period.
• What happens at the end of the interest-only period?
  Your repayments will increase as you begin paying down the principal, alongside the interest.
• Can interest-only loans be used for investment properties?
  Yes, they are commonly used by investors to maximise cash flow while property values appreciate.
• Do all lenders offer interest-only loans?
  No, not all lenders offer these products, but a broker like Esteb and Co can help you find those that do within their panel of 83+ lenders.