Interest Only Home Loans | Double Bay Mortgage Broker

What Is an Interest Only Loan and How Does It Work?

An interest only loan is a type of home loan where your repayments cover only the interest charged on the loan amount for a set period. During the interest only period, you are not required to pay down the principal balance. This means your monthly repayments are lower compared to a standard principal and interest loan, which can be useful for managing cashflow, particularly for property investors.

At Double Bay Mortgage Broker, we help residents across Double Bay understand exactly how an interest only mortgage works and whether it suits their financial situation. The interest only term typically runs for a period of one to five years, though some lenders may allow up to ten years depending on the loan structure and your circumstances. Once the interest only period ends, your loan reverts to principal and interest repayments, which will be higher than what you were paying before.

How interest only repayments are calculated

Calculating interest only repayments is straightforward. You multiply the loan amount by the interest only interest rate, then divide by twelve to get your monthly repayment. For example, on a $700,000 loan at a 6% interest rate, your monthly interest only repayment would be $3,500. Compare that to a principal and interest repayment on the same loan, which would be higher because you are also paying down the loan balance each month.

It is worth noting that interest only rates are often slightly higher than principal and interest rates. Lenders price IO loans differently because the principal is not being reduced during the interest only period, which represents a different risk profile. At Double Bay Mortgage Broker, we access loan options from banks and lenders across Australia to find interest only rates that suit your needs.

Who typically uses an interest only loan

Interest only loans are most commonly used by property investors. For interest only investors, the lower repayments during the interest only period can help maximise cashflow, particularly when rental income is covering a portion of the holding costs. There are also potential interest only tax benefits to consider, as the interest on an investment property loan may be tax deductible. This is a matter for your accountant or tax adviser to confirm based on your individual circumstances.

Some owner-occupiers also use interest only loans during certain periods, such as when cash is needed elsewhere. However, lenders apply stricter interest only eligibility criteria for owner-occupiers compared to investors, and the interest only LVR limits may also differ. Your interest only approval prospects will depend on your income, existing debts, the loan amount, and the lender's interest only serviceability requirements.

The Simple Steps

Initial Consultation

Your journey begins with a conversation about your property goals - whether you're purchasing a home, investing, refinancing, or seeking another type of loan. Our Finance & Mortgage Brokers explain the overall loan application process, assess your financial position, and begin identifying suitable loan options from a wide panel of banks and lenders across Australia.

Financial Assessment

Your broker conducts a detailed review of your finances, including income, expenses, assets, liabilities and savings. They determine your borrowing capacity and explain key terms like loan-to-value ratio (LVR), lenders mortgage insurance (LMI), and any government schemes or discounts you may be eligible for.

Loan Comparison & Selection

With a clear understanding of your financial situation, our Finance & Mortgage Brokers research and compare a range of loan options. These may include fixed or variable interest rate loans, products with offset accounts, or flexible repayment features. Our brokers help you weigh the pros and cons of each loan, ensuring you choose the one that aligns best with your needs and preferences.

Loan Pre-Approval

Securing loan pre-approval provides a clear idea of how much you can borrow and strengthens your position in the property market. Your broker prepares and submits the required documents - such as payslips, tax returns, and bank statements - to the lender for assessment. Pre-approval also gives you confidence to make offers when you find the right property.

Formal Loan Application

Once you've chosen your preferred loan, your broker completes and submits the formal application to the lender. They manage all required documentation, respond to any queries from the lender, and keep you informed throughout the process to avoid unnecessary delays.

Loan Approval & Settlement Preparation

After your loan is formally approved, our brokers review the loan agreement with you and confirm that all terms - such as interest rate, fees, and repayment schedule - are clear and understood. They also help you set up your loan account and arrange any necessary insurance, such as mortgage or home loan protection.

Settlement & Ongoing Support

At settlement, the lender advances the funds and ownership of the property is transferred to you. Our brokers coordinate with your solicitor or conveyancer to ensure everything runs smoothly. After settlement, our Finance & Mortgage Brokers remain available for ongoing support - whether it's managing repayments, exploring refinancing opportunities, or helping with future property plans.

Mortgage broker discussing interest only investment property loan options with a client

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The Benefits, Risks, and What Happens at the End of the Interest Only Period

Understanding the interest only benefits is important before committing to this loan structure. The primary advantage is lower payments during the interest only term, which can free up cashflow for other purposes. For property investors, this can mean the difference between holding an investment property comfortably and feeling financially stretched.

At Double Bay Mortgage Broker, we take time to walk you through the full picture, including the risks. One of the most important things to understand is interest only repayment shock. When the interest only period ends and your loan reverts to principal and interest, your repayments increase, sometimes significantly. This is because you are now paying down the principal over a shorter remaining loan term. Lenders factor this in when assessing interest only serviceability, which is why they apply an interest only buffer to their calculations.

Interest only vs principal and interest

When comparing interest only vs principal and interest, neither option is universally better. The right choice depends on your investment strategy, your cashflow needs, and your long-term property goals. Principal and interest repayments build equity in your property over time, while interest only repayments preserve cashflow in the short term. For investors focused on investment optimisation, the interest only structure can be a deliberate and considered choice when used appropriately.

Extending or renewing your interest only period

If you are approaching the end of your interest only period, you may be able to apply for an interest only extension or renew interest only terms with your lender, subject to reassessment. Alternatively, you might consider an interest only refinance to a new lender with more suitable terms. Double Bay Mortgage Broker can help you review your options before your interest only term expires, so you are not caught off guard by the change in repayments.

If you are looking to switch to interest only or convert to interest only from a principal and interest loan, this will also require lender approval and a reassessment of your circumstances. The maximum interest only term available to you will depend on the lender's policies and your loan to value ratio (LVR). We work with a wide panel of lenders across Australia to find the right fit for your situation.

Whether you are considering your first investment property, looking to expand your property portfolio, or exploring an investment loan refinancing option, Double Bay Mortgage Broker is here to help you understand how an interest only loan fits into your broader property and financial plans.

Hear From Our Clients

Our Client Reviews

Nick and the team at Azura Financial exceeded our expectations at every step. Their guidance was clear, their expertise was evident, and they handled every financial detail with care — giving us complete peace of mind throughout the process. We couldn't have asked for a better team by our side. Thank you very much, V&V.

Van Tran

As a founder, getting a mortgage requires a couple more hoops to jump through, which is why I couldn't recommend Nick O'Sullivan and the Azura team more highly. Not only were they able to offer a seamless process, but Nick was also patient with us as we changed our minds about when to buy (over a period of years!). The truth is anyone can approach a bank and get a mortgage, but when things don't go perfectly (e.g. abrupt government changes), that's when you want a pro on your team like Nick.

Shaun Cunningham

As a first home buyer, Carl and the team at Azura were incredibly helpful throughout the whole process. They made everything feel straightforward and were always there to answer any questions along the way. I’ve already recommended them to friends and would highly recommend them to anyone looking to get a mortgage!

sarah ander

Your Questions Answered

Frequently Asked Questions

Why choose Double Bay Mortgage Broker over a broker based elsewhere?

Choosing a local broker means working with someone who genuinely understands the Double Bay area, the types of properties here, and the people who live and invest in this community. We are not a call centre or a faceless online service. We are a local business that takes pride in building real relationships with our clients. When you work with Double Bay Mortgage Broker, you get personalised service from someone who is invested in your outcome. We are accessible, we communicate clearly, and we are here for the long term. Many of our clients come back to us when their circumstances change, and that kind of ongoing relationship is something we value deeply.

Can Double Bay Mortgage Broker help if I am self-employed?

Yes, we work with self-employed clients regularly. Getting a home loan when you are self-employed can be more involved than a standard application because lenders assess income differently for business owners. Some lenders require two years of tax returns, while others offer what are known as low-doc loans, which require less documentation but may come with different conditions. At Double Bay Mortgage Broker, we understand how to present a self-employed application in a way that gives it the strongest possible chance of being assessed fairly. We will take the time to understand how your income works and match you with lenders who are well suited to your type of borrowing situation.

What documents will I need to provide?

The documents required will depend on your individual circumstances, but as a general guide, most lenders will want to see proof of identity, recent payslips or tax returns, bank statements, details of any existing debts or liabilities, and information about the property you are looking to purchase or refinance. If you are self-employed, you may need to provide additional documentation such as business financial statements or BAS statements. At Double Bay Mortgage Broker, we will give you a clear checklist of what is needed for your specific situation so you are not scrambling to pull things together at the last minute. Being organised early can help keep the process on track.

How long does the home loan process take?

The timeline can vary depending on a number of factors, including the lender you go with, the complexity of your application, and how quickly documents are provided. In general, once we have everything we need from you, a straightforward application can take anywhere from a few days to a few weeks to receive formal approval. At Double Bay Mortgage Broker, we work to keep things moving as efficiently as possible and keep you updated along the way. We know that waiting for news on something as important as a home loan can be stressful, so we make it a priority to stay in regular contact and answer your questions promptly.

What is refinancing and how do I know if it is worth looking into?

Refinancing means replacing your existing home loan with a new one, either with your current lender or a different one. People refinance for a number of reasons, including accessing equity in their property, consolidating debts, changing their loan structure, or simply reviewing whether their current loan still suits their needs. At Double Bay Mortgage Broker, we can review your existing loan and compare it against what else is available in the market. We will give you an honest assessment of whether refinancing makes sense for your situation. There are costs involved in refinancing, such as exit fees or application fees, and we will make sure you understand these before making any decisions.

I am a first home buyer. Can Double Bay Mortgage Broker help me?

Absolutely. Buying your first home is one of the biggest financial decisions you will ever make, and it can feel overwhelming when you are not sure where to start. At Double Bay Mortgage Broker, we work with first home buyers regularly and understand the questions and concerns that come with it. We will walk you through the process from start to finish, explain the different loan options available to you, and help you understand what government grants or schemes you may be eligible to apply for, such as the First Home Owner Grant. We want you to feel informed and confident at every stage, not left in the dark.

What types of loans can Double Bay Mortgage Broker help with?

We help clients with a wide range of lending needs. This includes home loans for owner-occupiers, investment property loans, refinancing existing loans, construction loans, and loans for self-employed borrowers. We also assist with commercial finance and asset finance depending on your situation. Whether you are buying your first home in Double Bay, looking to grow a property portfolio, or wanting to review your current loan to see if there is a more suitable option out there, we are here to help. Every client has a different set of circumstances, and we take the time to understand yours before recommending any course of action.

How much does it cost to use Double Bay Mortgage Broker?

In most cases, our service comes at no direct cost to you. Mortgage brokers in Australia are typically paid a commission by the lender once a loan settles. This means you can access our knowledge and support without paying out of pocket. We are upfront about how we are paid and will always explain this to you clearly before we get started. There are some situations where a fee may apply, and if that is the case, we will let you know well in advance so there are no surprises. Transparency is something we take seriously at Double Bay Mortgage Broker.

Why should I use a mortgage broker instead of going directly to my bank?

When you go directly to your bank, you only see what that one lender has to offer. A mortgage broker like Double Bay Mortgage Broker has access to a broad panel of lenders, which means we can present you with a wider range of options. Your bank is focused on selling its own products, whereas we are focused on finding the right fit for your circumstances. We also know how different lenders assess applications, which means we can help you put your best foot forward. For residents in Double Bay, having someone local who understands the property market in this area can make a real difference.

What does a mortgage broker actually do?

A mortgage broker acts as the go-between for you and a range of lenders. Rather than you having to approach each bank or lender on your own, a mortgage broker does the legwork for you. At Double Bay Mortgage Broker, we look at your financial situation, understand what you are trying to achieve, and then search through a wide panel of lenders to find options that suit your needs. We handle the paperwork, liaise with lenders on your behalf, and guide you through each step of the process. It is our job to make sure you understand what you are signing up for before you commit to anything.

Interest Only Loans in Double Bay

Reduce your monthly payments and maximise cashflow with an interest only loan