The short answer: an interest-only home loan lets you pay only the interest for a set period, such as five years, before it switches to principal and interest and the repayments go up. Expats can get them, but availability depends on the lender and on your borrower category. The step-up at the end needs planning from day one.
Interest-only comes up a lot with investors. It's a useful tool. It's also one of the most misunderstood, because the low early repayment is the part people see and the later step-up is the part they don't.
How an interest-only loan works
On a principal and interest loan, each repayment covers the interest plus part of the amount you borrowed, so the balance shrinks over the loan term. On an interest-only loan, for an initial period your repayments cover only the interest. You pay nothing off the amount borrowed, so it doesn't reduce (Moneysmart, Interest-only home loans).
Moneysmart uses five years as its example of an interest-only period. At the end of it, the loan changes to principal and interest. You start repaying the amount borrowed as well as the interest, which means higher repayments (same source).
Why the repayment steps up when the interest-only period ends
Two things happen at once. You start repaying principal on top of interest. And you're repaying the full original balance over fewer years than the loan started with, because the interest-only years have already been used up.
That's why Moneysmart suggests checking when your repayments will go up and by how much, and preparing for it early. Its interest-only mortgage calculator works out your repayments before and after the interest-only period (Moneysmart). The shape is what matters: lower now, noticeably higher later.
For an expat, the later repayment has a second moving part. If you're funding it from SGD, HKD or AED income, the foreign-currency cost of that higher Australian dollar repayment depends on the exchange rate at the time. We don't forecast currencies, but it's a reason to test the post-interest-only repayment with some room to spare.
The trade-offs, in plain terms
Moneysmart lists these pros and cons (Moneysmart):
- Lower repayments during the interest-only period, which can free up cash flow.
- For investors, potentially higher tax deductions on an investment property. That's a tax question for a registered tax agent, not something to decide on a loan feature alone.
- The interest rate can be higher than on a principal and interest loan, so you pay more over the life of the loan.
- No equity is built through repayments. If the property doesn't rise in value, you won't build equity, which is a risk if the market falls or your circumstances change and you want to sell.
- Repayments increase afterwards, and that higher amount may not be affordable.
Why interest-only became harder to get, and what's changed
In March 2017 APRA set a temporary supervisory benchmark asking banks to limit new interest-only lending to 30 per cent of their new housing loans. APRA later removed it, from 1 January 2019 for banks that no longer had the investor loan growth benchmark, saying both benchmarks had served their purpose (APRA).
The benchmark is gone, but lenders still have to lend responsibly. Under the National Consumer Credit Protection Act, lenders have to assess whether a loan is unsuitable for you, and ASIC's guidance on those obligations is set out in Regulatory Guide 209 (ASIC, RG 209). In practice, that's why lenders look past the interest-only repayment and ask whether you can manage the higher principal and interest repayment that follows.
The expat angle: whether you can get it at all
For an expat, interest-only is a question of lender policy rather than a blanket yes or no. Each lender decides whether it offers interest-only, for how long, and to which borrowers. The answer can differ depending on whether you're an Australian citizen, a permanent resident or neither, and on whether the property is one you'll live in or rent out.
So for an expat, "can I get interest-only?" is really "which lenders offer interest-only to someone in my category, earning my kind of income?" That's a lender-fit question, and it's worth answering before you're committed to a property, not after. Your income will usually be shaded before it's counted too, which affects whether the later repayment fits. See how lenders assess overseas salary.
Owner-occupied or investment?
In our experience, interest-only comes up mostly with investors. For a home you'll live in, principal and interest is what pays the loan off, and Moneysmart notes most people choose it (Moneysmart, Choosing a home loan). If you're buying an investment property from overseas, our guide to the Australian expat investment property loan covers the wider picture.
Interest-only and an offset account
Investors often pair interest-only with an offset account. An offset account is a transaction account linked to the loan, and interest is charged on the loan balance less the offset balance. So you're charged interest on less while the cash stays in an everyday account (Moneysmart, Offset account). You can model the effect with our home loan offset calculator. Whether that combination suits you depends on your cash flow and tax position.
Questions worth asking before you choose interest-only
- What will my repayment be when the interest-only period ends, and can I afford it with room to spare?
- Does the lender offer interest-only to someone in my borrower category and with my income type?
- What happens if I want to extend the interest-only period later, from overseas?
- Is the loan for a property I'll live in, or one I'll rent out?
- Have I asked a registered tax agent about the tax side, rather than assuming it?
Moneysmart's interest-only guidance links to its interest-only mortgage calculator, which shows repayments before and after the interest-only period. Our own loan repayment calculator is also there if you want to test a scenario.
Frequently asked questions
Can Australian expats get an interest-only home loan?
Many can, but it depends on the lender and your borrower category. Each lender sets its own interest-only policy, including which borrowers it offers it to, and the answer can differ for Australian citizens, permanent residents and other non-residents.
What happens when an interest-only period ends?
The loan changes to principal and interest. You start repaying the amount borrowed as well as interest, so repayments go up. Moneysmart recommends working out the new repayment in advance and making sure you can afford it.
Is an interest-only loan cheaper?
Only during the interest-only period. The interest rate can be higher than on a principal and interest loan, you don't reduce the balance, and repayments rise afterwards, so you can pay more over the life of the loan (Moneysmart).
Does APRA still limit interest-only lending?
Not through the 2017 benchmark. That benchmark, limiting new interest-only lending to 30 per cent of new housing loans, was temporary, and APRA began removing it from 1 January 2019, saying it had served its purpose. Banks are still expected to keep oversight of their interest-only lending, and lenders still have responsible lending obligations.
Sources
- Moneysmart (ASIC): Interest-only home loans (accessed 18 September 2026)
- Moneysmart (ASIC): Choosing a home loan (accessed 18 September 2026)
- Moneysmart (ASIC): Offset account (glossary) (accessed 18 September 2026)
- APRA: APRA to remove interest-only benchmark for residential mortgage lending (accessed 18 September 2026)
- ASIC: Regulatory Guide 209, Credit licensing: Responsible lending conduct (accessed 18 September 2026)
If you're weighing up interest-only for a property back home, book a call with our team and we'll look at how lenders would see your situation.
Aussie Expat Home Loans holds Australian Credit Licence 509125. This article is general information only and doesn't take your personal circumstances into account. No rates or repayment figures are quoted here. Lender policies on interest-only lending vary and change over time. Tax deductibility is a matter for a registered tax agent. Before acting, consider your own situation and seek advice specific to it.
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