Discover if an interest-only loan could lower your payments and boost your properties cash flow.
Interest-only mortgages are a temporary way to set up your loan. You only pay interest without paying back the mortgage.
Interest-only loans are popular and used primarily by property investors. They use it because it lowers your mortgage payments and improves cashflow.
But, while cheaper in the short term, over the long-term they are more expensive.
This is because (ironically) with an interest-only loan you pay more interest over time.
So, are they worth it?
In this article, you’ll learn why seasoned property investors like interest-only loans. And you’ll be able to use our Interest-Only Mortgage Calculator to see how one could work for you.
| Loan type | Interest-only | Principal and interest |
| What it does | Pays interest only for a set period | Pays interest and reduces the loan |
| Main benefit | Higher cashflow | Builds equity faster |
| Main downside | You pay more interest over time | Higher mortgage repayments |
| Typically works for | Investors who need lower repayments | People who want to pay down debt |
There are two types of mortgages:
Most owner-occupiers use principal and interest (P+I) loans.
Part of your repayment goes to paying back the loan (the principal).
The other part goes towards paying the interest on the loan. That’s the cost of borrowing money from the bank.
These mortgages typically start on a 30-year term. That means you have 30 years to pay the loan pack.
| Pros of an interest-only mortgage | Cons of an interest-only mortgage |
Lower repayments in the short term Higher cashflow Can free up money for other goals Often useful for investors Can help during expensive life stages | You pay more interest over time Your debt does not go down Repayments can jump later if you switch to a principal and interest loan Can be harder to extend over time Your interest-only period eventually expires |
Generally, only property investors can get an interest-only loan.
In 2023, 34% of new lending to investors was interest-only, according to the Reserve Bank. That compares to 14% for owner-occupiers and first-home buyers.
You need to give the bank a reason for approving your interest-only application.
Often, this is as simple as saying: “It’s more tax-efficient to use an interest-only loan”.
Your accountant can provide you a letter that explains that to the bank if necessary.
Banks are getting stricter with approving interest-only lending.
So, if you get turned away for an interest-only loan … it’s not the end of the world.
Sure, extra cash flow is great. But if it isn’t approved, you are still paying down debt, which improves your financial position.
In our experience, if you ask for it in the right way, you will likely get approved.
The amount you can temporarily save depends on the interest rate.
Here’s an example: Bill and Sam take out a $500,000 loan with a 7% interest rate.
If this was a 30-year principal and interest mortgage the weekly repayment would be $767.
But the bank approved this couple for an interest-only mortgage. So their weekly repayments is $673, saving $94 per week.
This means over the whole 5-year period, Bill and Barry will save $24,440 in repayments.
This is money they would otherwise have paid towards their P+I mortgage. It’s a huge amount.
But over time the cost of an interest-only mortgage is still higher ... because you pay more in interest.
Let’s go through a few scenarios to see how the numbers work.
| Mortgage structure | Total interest paid | Extra interest compared with principal and interest |
| Principal and interest for 30 years | $411,413 | – |
| 5 years interest-only, then principal-and-interest for 25 years. | $445,680 | $34,267 more |
| 10 years interest-only, then principal-and-interest for 20 years. | $483,666 | $72,253 more |
This assumes a constant interest rate of 4.5% over the life of the loan.
An “interest-only mortgage” is a bit of a misnomer.
Really, it’s an interest-only period. It’s temporary.
The bank won’t let you stay interest-only forever because, at some point, they still want the loan paid back.
Generally, banks approve interest-only periods for up to 5-10 years.
ASB, BNZ, Kiwibank and Westpac can approve interest-only periods of up to 5 years for investors.
ANZ and TSB can go up to 10 years.
Once your interest-only period ends, you need to apply again if you want to stay interest-only. Otherwise, you will automatically switch to paying down the loan.
Here are the maximum interest-only periods available as of 1st June 2026.
| Investor | Owner Occupier | |
| ANZ | 10 years | 2 years (e.g. for the deposit of an investment property) |
| ASB | 5 years | 2 years |
| BNZ | 5 years | 5 years (with a valid reason) |
| Kiwibank | 5 years | 1 year |
| TSB | 10 years | 3 years max. But they often do it one year at a time |
| Westpac | 5 years | 3 years. (e.g. for the deposit of an investment property) |
Now, two things can happen at the end of your initial 5-year interest-only period.
In theory, you could keep applying for new interest-only periods.
But in practice, this gets harder over time.
That’s because the bank still expects the loan to be paid off within the original loan term.
For instance, let’s say you take out a 30-year loan and get a 5-year interest-only period.
The bank will run the numbers to make sure you can pay off the mortgage over the remaining 25 years (once that interest-only period is up).
After those 5 years, you apply for another one. Before the bank approves this, it will check that you can pay off the loan over the remaining 20 years.
You’ll need to make a bigger repayment if you pay off your mortgage over 20 years rather than 25 years. So the bank will want to see that you have the income to afford this.
This is why the longer you stay interest-only, the shorter the remaining repayment period becomes.
Here’s what that looks like:
It depends on your situation.
If you’re an older Kiwi investor, a principal and interest loan can be the right decision. Especially if you’ve already paid the mortgage on your own home.
This way you can start paying down your debt as you approach your retirement.
But for an early-to-mid career investor, an interest-only loan could help with cashflow.
That is particularly the case if you have a big mortgage on your own property.
Interest-only loans aren’t the right fit for everyone.
If you want to see if it’s the right option for you, have a chat with a mortgage broker such as Opes Mortgages.
| After this many years interest-only | The bank tests whether you can repay the loan over… |
0 years 5 years 10 years 15 years | 30 years 25 years 20 years 15 years |
The shorter the repayment period, the higher your repayments become.
Let’s say you apply for a $650,000 loan.
Using a 7% servicing test rate, this is how much the bank checks you can afford:
| Loan structure | Years to pay back the loan | Assessed monthly repayment |
|---|---|---|
| Standard 30-year mortgage | 30 years | $4,325 |
| After 5 years interest-only | 25 years | $4,595 |
| After 10 years interest-only | 20 years | $5,040 |
Here at Opes, we’ve seen some investors keep their interest-only loans for 15 years and beyond. This is where they might:
You can ask the bank to extend your mortgage term back out to 30 years.
This means the bank tests whether you can repay the loan over a longer period, which keeps your assessed repayments lower.
Though this gets tougher as you get older and near the end of your working life.
If your current bank says no, another bank may say yes.
Different banks have different interest-only policies, so you don’t always have to stick with the same lender.
Some non-bank lenders may offer longer interest-only periods. However, these usually come with stricter criteria and higher interest rates.
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We specialise in property investors. We'll help you find the right loan structure and the lender most likely to say yes.
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Mortgage broker for over 10 years, property investor and Managing Director at Opes Mortgages
Peter Norris, a certified mortgage adviser with 10+ years of experience, serves as the Managing Director at Opes Mortgages. Having facilitated over $1.2 billion in lending for 2000+ clients, Peter is a respected authority in property financing. He's a frequent writer for Informed Investor Magazine and Property Investor Magazine, while also being recognized as BNZ Mortgage Adviser of the Year in 2018 and listed among NZ Adviser's top advisers in 2022, showcasing his expertise.
This calculator is for general information only. It’s not financial advice. See here for details about our Financial Advice Provider Disclosure. So Opes isn’t telling you what to do with your own money.
We’ve made every effort to make sure the calculator and its assumptions are reasonable and accurate. But calculators rely on estimates and inputs you provide, and the results won’t be right for everyone. Make sure you do your own research or talk to a financial adviser before making any investment decisions.
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