What CBA’s interest-only changes mean for property investors

Recently, the major bank unveiled its new interest-only loan offerings. Now, investment borrowers can claim interest-only loans for up to 15 years.

On top of that, the need to refinance every five years is gone, creating a more streamlined option for those investing in property.

Brokers have weighed in on the changes, with many pleased that the decision will help create better opportunities for borrowers.

“Extending the interest only term with CBA will assist investors especially investor who may be capped out in servicing and are unable to refinance elsewhere. Being able to ring and have the interest only term extended over the phone will assist freeing up some cash flow for them and able to continue to invest further,” said Hello Funding broker Ashley Fisher.

“Most property investors select to have interest only payments as this can assist with cash flow and can put them in a better position. I think this is a good move from CBA and for many investors.”

While not quite as lucrative for owner-occupiers, the new loan extension and ease of access are a “game changer,” said Yellow Brick Road branch principal Effie Nicol.

“Extending an interest only term without refinancing can be a real game changer for property investors. It helps manage cash flow more easily, saves on refinancing costs and frees up funds to focus on other priorities such as paying down their home loan faster or expanding their investment portfolio,” she said.

“Based on my experience, property investors who qualify may find this offering from CBA very appealing. Extending the interest only period allows them to benefit from tax advantages while their property continues to grow in value, giving them the flexibility to focus on managing cash flow without the pressure of principal repayments. However, it may not be the right fit for everyone, depending on their individual financial goals and circumstances.”

Lucas Horne, director at Mountain Mortgages, was a little more sceptical of the announcement. For those struggling with finances, a lack of awareness of the consequences of an interest-only loan could stand to leave them at a disadvantage.

“The introduction of a 15-year interest-only term is an excellent offering for experienced investors focused on capital growth. However, I am concerned about novice or financially strained investors who might be attracted by the reduced repayments without fully understanding the implications for the loan’s later stages,” said Horne.

“For those planning a property investment over a 10–15-year horizon, this product can be highly advantageous. That said, I strongly recommend incorporating a 5–10-year review to help borrowers stay informed and prepared for the transition at the end of the interest-only period.”

However, aside from the extension of the loan, the ability to refinance without filling out an application makes loan management much easier. This streamlined approach stands to benefit investors looking to continue interest-only periods.

“It’s absolutely super beneficial for property investors. It’s probably one of the big bugbears when we get to five years trying to re-extend the interest only terms. Particularly with CBA where they’ve got their own direct team,” said Atelier Wealth founder Aaron Christie-David.

“If some of the clients want to extend their interest only terms, they’ve got to contact CBA directly. And we don’t even know what conversations are happening. So, for us to be back in the driver’s seat, to have this longer interest only term for us, that’s an absolute game changer, particularly for investors as well.”

Will the other majors follow suit?

The question on everyone’s mind is whether or not this move will set a precedent among the other majors. For investment loans, Westpac and NAB offer 10-year maximums, while ANZ offers five years.

Fisher is anticipating announcements from the other banks following CBA’s lead: “I expect to see some of the other majors follow the lead of this move, which would free up more options for customers and brokers.

“However, it will be good to see CBA also continue to offer loyal customers competitive rates that are going to select to stay with them on a longer interest only term, as I think investor will continue to look elsewhere with their brokers if ongoing rate reviews over the 15 years is not offered and honoured with CBA.”

Nicol agreed, but believes the true potential needs to be seen before others jump on board with policy changes.

“I believe some Banks will follow CBA’s lead in extending interest only periods once they see how it performs. However, others may hesitate due to the restrictions in their policies and guidelines. To stay competitive in the investment market and retain customers, those with more flexibility are likely to offer similar benefits,” said Nicol.

Horne is also anticipating changes on the horizon for other lenders: “I anticipate that most lenders currently offering 10-year interest-only terms will likely extend their offerings to include 15-year terms. Investors seeking 10-year interest-only periods will often see additional benefits in extending to 15 years. These investors typically prioritise maintaining cash flow over repaying principal and frequently refinance into new interest-only products at the end of their existing terms. This trend underscores the appeal of longer-term interest-only options for experienced property investors.”

For Christie-David, there is some balanced excitement and concern with CBA’s move. While CBA certainly has the pull to enact change across the sector, he describes the interest-only term extension as a “double edged sword.”

“Will other banks follow leads? I don’t know. I would definitely say that once CBA makes moves, the others tend to follow as well. They do have the first manoeuvre advantage. I don’t think that’s necessarily a competitive advantage because others will see that what they’re doing and follow suit as well,” said Christie-David.

“I think it’s a good move for the industry. Good move for investors and borrowers. I think this is going to be exciting. On one hand, we have a longer interest only term, it does reduce borrowing capacity. So, I think it’s a double-edged sword. You’ll get a longer interest only term, but you probably get reduced borrowing capacity.”

Related: CBA extends maximum interest-only loan period

Jack Campbell is the editor of Broker Daily. After graduating from the University of Wollongong in 2022, Jack began his journalistic career working on Broker Daily’s sister brand, HR Leader. In August 2023 he was made the news editor and worked alongside some talented journalists writing articles and recording podcasts.

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