Interest-Only Commercial Property Loans: How Long Can You Get?
Property Lending Hub
Commercial property · Interest-only terms · Business-purpose lending
The useful question is not whether commercial interest-only exists. It does. The useful question is how long a lender will write it for your property, what can shorten the term, and whether the lower repayment now still works when principal starts later.
Quick Answer
Yes. Australian commercial property loans can be written interest-only, and there is no single legislated maximum period for a business-purpose commercial facility. Published product ceilings differ by lender and are set out with their sources further down this page. Those are product-specific ceilings, not a market rule, and the period actually approved can be shorter because of the repayment source, firm lease term or WALE, gearing, security type, facility maturity and whether the loan still works after interest-only ends. Some products also price interest-only differently, so compare the whole offer rather than the repayment alone.
Also called: commercial interest-only loan, interest-only commercial mortgage, IO commercial property facility.
How long can interest-only run on a commercial property loan?
There is no one Australian maximum. Current published lender examples show why a single number is misleading: one Australian bank commercial product publishes interest-only for up to five years, while one specialist commercial property product publishes interest-only for up to eight years. The number on your approval can still be shorter because commercial lending is written to the property, the borrower and the repayment source rather than to one universal term.
Current published product context
- Up to 5 yearsA current Australian bank commercial product publishes principal and interest or interest-only for up to five years on eligible investment-purpose facilities, subject to credit criteria.Source: Australian bank commercial product page, read 18 September 2026. Product-specific only. Not a market maximum, quote or promise of approval.
- Up to 8 yearsA current specialist commercial property product publishes interest-only for up to eight years. The same product page states a maximum LVR of 80% and a 0.50 percentage-point interest-only rate loading.Source: specialist commercial product page, read 18 September 2026. Product-specific only. The published loading and LVR belong to that product and are not market-wide rules.
The commercial answer therefore has two layers. The first is what a lender is willing to publish for a product. The second, and more important, is what its credit team will write for your deal. An eight-year product ceiling does not mean an eight-year approval if the lease has only three firm years left, the property is specialised, the gearing is high or the post-interest-only repayment does not work.
Interest-only also has to have a job. Borrowers commonly ask for it to preserve working capital during a fit-out, acquisition, vacancy period, lease-up, expansion or planned sale. The weak version is where the file only works because principal is not being repaid and there is no credible answer for what happens later. That is the difference between interest-only as a cash-flow tool and interest-only as a deferred problem.
A defined reason for interest-only
- Working capital is being protected for a specific business event
- There is a planned lease-up, fit-out, capex program, sale or refinance
- The post-interest-only repayment has been modelled before settlement
A weak reason for interest-only
- The loan only services on the interest-only repayment
- The plan is simply to ask for another extension later
- No one has checked the facility maturity or balloon date
Do residential interest-only rules cap a commercial facility?
No, and the rule most people are remembering was removed from residential lending years ago. The prudential benchmark that made interest-only lending suddenly hard was scoped to interest-only residential mortgage lending by authorised deposit-taking institutions, was set at 30 per cent of new residential mortgage lending, applied from March 2017, and was removed effective 1 January 2019. The practice guide usually cited beside it declares its residential scope in its own title. Neither reached commercial facilities, and the benchmark no longer applies to residential ones either.
The same boundary runs through the newer tools. The debt-to-income limit and the serviceability buffer are residential settings for authorised deposit-taking institutions, and neither reaches a non-bank lender at all. The National Credit Code also generally sits outside credit provided wholly or predominantly for business purposes. That does not mean commercial borrowers have no legal protections, and the purpose of the credit still matters. It means you should not import a home-loan interest-only rule into a business-purpose commercial property facility.
Which rule reaches which lending, and when
- The interest-only benchmark people remember 30 per cent of new residential mortgage lending by authorised deposit-taking institutions. Applied from March 2017, removed effective 1 January 2019. Source: prudential regulator media release, 19 December 2018, read 18 September 2026. Qualifier: residential in scope. It never reached commercial facilities.
- The debt-to-income limit and the serviceability buffer The debt-to-income limit effective 1 February 2026 applies to residential mortgage lending by authorised deposit-taking institutions, and the serviceability buffer is a residential lending standard set in the macroprudential attachment to the credit risk standard. Source: prudential regulator letter to authorised deposit-taking institutions, read 18 September 2026. Qualifier: neither applies to non-bank lenders. The regulator has said it holds powers over lenders it does not regulate where they materially contribute to financial stability risk, and that it has not used them.
- Where commercial property does sit in that attachment The attachment covers commercial property lending as well as residential. The commercial loan types named are land acquisition, development and construction, and lending for the purposes of investment. Interest-only appears in the residential list only. Source: prudential regulator macroprudential policy materials, read 18 September 2026, with the loan-type breakdown as summarised in Australian legal analyses of the attachment. Qualifier: the attachment itself is the authority. No limit is currently activated on either commercial category.
- What does reach commercial property Where repayment depends on the property's cash flows, the capital adequacy practice guide requires an assessment of the tenancy profile relative to the maturity of the loan. Its interest-only guidance is confined to residential mortgage exposures. Source: prudential regulator, APG 112, read 18 September 2026. Qualifier: binds authorised deposit-taking institutions only. A consultation on a draft revision opened 29 June 2026 and closed 7 September 2026, with a proposed effective date of 1 April 2027; nothing in it proposes changing the commercial property segmentation or the interest-only position.
What decides the interest-only term a lender will offer?
Five things usually decide the term: where the repayment comes from, the lease profile, gearing, the post-interest-only repayment or exit, and the security itself. The same requested period can therefore produce different answers on two properties with the same value.
| Constraint | What the lender is asking | How it can shorten interest-only | What can change the answer |
|---|---|---|---|
| Repayment source | Is the debt carried by rent, a trading business, another asset sale or a defined refinance? | A weak or temporary repayment source makes a long period harder to support. | Present the repayment source and end event clearly at application. |
| Lease and WALE | How much firm tenancy remains relative to the loan maturity? | Short firm lease term or short WALE can cap the period on rent-supported lending. | A completed lease renewal or stronger tenancy profile can change the file. |
| Gearing | How much debt sits against the lender's accepted value? | Higher LVR can reduce product choice, price flexibility or interest-only appetite. | More equity, a lower facility limit or a stronger valuation position can help. |
| Reversion or exit | What happens when principal starts or the facility matures? | A file that only works on today's interest payment tends to get cut back. | Show the actual post-interest-only repayment, refinance path, sale event or debt reduction plan. |
| Security type | How easy is the property to value, sell and refinance? | Specialised or thin-market security narrows lender appetite and term flexibility. | Lower gearing and stronger cash flow can partly offset the property risk. |
On a phone, swipe sideways to compare every column.
For rent-supported property, APRA's framework is useful because it explains why the tenancy keeps appearing in credit decisions. Where commercial property repayment depends on rental cash flow, an authorised deposit-taking institution must assess the tenancy profile relative to the maturity of the loan. On a multi-tenant property, that can include whether the weighted average lease expiry, or WALE, sufficiently exceeds maturity. That is a capital and credit classification rule for banks, not a promise that any lender will approve a matching interest-only period.
What if the property is vacant or the tenant has not exercised its option?
Vacancy does not automatically rule out interest-only, but it changes what the lender can rely on to service the debt. Where the loan is meant to be carried by rent, a vacant building has no current lease income to evidence. Where a trading business will occupy the property and service the debt from business revenue, the credit assessment can instead turn on that business cash flow. An unexercised lease option is also not the same thing as firm contracted lease term. A completed renewal or executed variation gives the lender stronger evidence than an intention to renew.
APRA's current commercial property framework makes the distinction useful: bank exposures that depend on property cash flow are assessed against the tenancy profile relative to loan maturity, while an SME loan secured by commercial property but serviced by business revenue is an example of property finance not dependent on property cash flow. If the building is empty, use the dedicated guide to commercial property finance with no tenant because valuation and servicing can change before interest-only is even considered.
The tenancy mechanics are covered in more depth in how your tenant sets your LVR, while the wider split between trading-business and rental servicing sits in passive versus owner-operated commercial property.
Does it change if you occupy the property or lease it out?
Yes. A tenanted investment is usually underwritten around the property income and tenancy profile, while an owner-occupied property is usually underwritten around the trading business that services the debt. That changes which evidence matters and why the interest-only request is accepted, shortened or declined.
On a tenanted property, the lender is asking how durable the rent is. The lease, rent review mechanics, tenant quality, vacancy risk and WALE matter because that income is what carries the debt. On an owner-occupied property, the rent question falls away and the lender is more interested in business cash flow, existing debt, add-backs, tax position and whether the business can handle the repayment after interest-only ends.
This also explains why two borrowers can receive the same interest-only period for completely different reasons. One may be capped by the lease. The other may be capped by the trading business's ability to amortise the debt later.
If the distinction itself is still unclear, start with passive versus owner-operated commercial property before comparing loan structures.
How do full doc, lease doc and low doc change the answer?
The documentation path changes the interest-only answer because it changes what the lender can verify. It is not simply a paperwork preference. Full doc, lease doc and low doc can point the credit assessment at different evidence and therefore produce different term, LVR and pricing outcomes.
| Path | Main evidence | What usually drives interest-only | Common weak point |
|---|---|---|---|
| Full doc | Financial statements, tax returns and current business information | Whole-of-business serviceability plus security and exit | The file works today but not once principal repayments begin |
| Lease doc | Arms-length lease, rent and property outgoings | Interest cover, lease term, tenant profile and property | Firm lease tail is shorter than the period requested |
| Low doc | Alternative business income evidence such as BAS, bank statements or accountant-supported figures, depending on policy | Verified alternative income plus security and exit | Less independent evidence can narrow lender choice or term flexibility |
| Short-term/private structure | Security value and a defined exit event | Exit certainty, gearing and time to the event | The exit is vague, delayed or depends on another approval that has not been tested |
On a phone, swipe sideways to compare every column.
A lease-doc approval can therefore be easier to evidence than a full-doc approval and still return a shorter interest-only period because the lease itself is short. A low-doc approval can solve an income-document problem but come with a different price or LVR. The right comparison is the whole structure, not which label sounds easiest.
For the documentation side, see lease-doc commercial property loans and low-doc commercial loans.
From our broking, indicative
Across the commercial property files we place, the reason an interest-only request is cut back is usually identifiable before approval if the submission is built around the right constraint.
- The firm lease period is shorter than the interest-only period requested.
- The file covers the interest payment but not the repayment after interest-only ends.
- The security is specialised enough that the lender wants earlier amortisation or a shorter review point.
- The reason for interest-only is stated as a preference rather than tied to a specific business event or exit.
Basis: patterns observed across commercial property files placed by Switchboard Finance, as at 18 September 2026. Indicative and qualitative only. Not a quote, offer, approval likelihood or statement of any lender's policy. Actual terms depend on the file and lender policy at application. General information only.
How do you read the interest-only terms on a commercial loan offer?
Separate the clocks. The interest-only period, facility term, amortisation period, fixed-rate period and annual review are different things, and the biggest mistakes happen when a borrower reads one of them as though it were the others.
- Interest-only period
- The period during which scheduled repayments cover interest without scheduled principal reduction.
- Facility term or maturity
- The legal period before the facility ends or must be renewed, refinanced or repaid. It can be shorter or longer than the interest-only period.
- Amortisation period
- The period used to calculate principal repayments. A commercial loan can have a five-year legal term but repayments calculated over a much longer amortisation period, leaving a balance due at maturity.
- Fixed-rate period
- The period for which the interest rate is fixed. It is separate from the interest-only period and can end on a different date.
- Annual review
- A contractual credit review that may require updated financials, lease information or valuation evidence. Not every commercial facility has one.
- Balloon or residual
- The principal still due at the end of a structure where the legal term is shorter than the amortisation period or the facility is otherwise written with debt outstanding at maturity.
- Interest cover ratio
- A serviceability test comparing the property's net income against the interest payable on the facility. It is used on lease documentation commercial lending in place of the assessment rate buffer applied to residential loans, and because it measures income against interest alone it is the natural test for a facility written interest-only.
- Debt service cover ratio
- The same shape of test measured against the full debt service, principal and interest together rather than interest alone. The move from interest cover to debt service cover is exactly what happens to your facility at reversion.
- Weighted average lease expiry, or WALE
- The average unexpired lease term across the tenancies in a property, weighted by income or by lettable area. It is the multi-tenant equivalent of the remaining lease term on a single-tenant building, and it is what a lender measures against the maturity of the loan.
- Remaining lease term, excluding options
- The fixed term still to run on a lease, counting none of the option periods. An option is the tenant's to exercise and not the borrower's to rely on, so a lender counts only the fixed tail.
Can you switch an existing commercial loan from principal and interest to interest-only?
Sometimes, without refinancing, but it is product and lender specific. One current Australian bank business-loan guide says borrowers can switch between interest-only and principal-and-interest repayment options during the life of the loan, with limits applying when a new or extended interest-only period is requested. Do not assume your existing facility works the same way. Ask whether the change is available as a variation, what information must be updated, whether pricing or term changes, and what repayment applies when the new interest-only period ends. Current business-loan repayment guidance, read 18 September 2026.
What if you refinance, sell or repay the loan before interest-only ends?
The unused interest-only period does not make exit costs disappear. A refinance is a new credit decision with a new lender, and your outgoing facility can still carry discharge costs, fixed-rate break costs or a deferred facility fee depending on its contract. One current specialist commercial product, for example, publishes a deferred facility fee where the loan is repaid before the earlier of the end of the term or the third anniversary of settlement, plus discharge, legal and government charges. That is a product-specific example, not a market rule. The practical step is to request a payout figure and read the original offer before deciding that a longer interest-only period makes an offer cheaper. Current specialist commercial product terms, read 18 September 2026.
| Compare | Offer A | Offer B | Why it matters |
|---|---|---|---|
| Interest-only period | Write the exact end date | Write the exact end date | A lower rate can still be worse if the repayment step-up arrives much earlier. |
| Facility maturity | Record legal maturity | Record legal maturity | If maturity coincides with interest-only expiry, the problem may be refinance or repayment, not just a P&I reset. |
| Amortisation after IO | Record remaining period | Record remaining period | Shorter amortisation creates a larger repayment jump. |
| Rate and IO loading | Separate base rate and any loading | Separate base rate and any loading | Some products price interest-only differently from P&I. |
| Upfront and ongoing fees | List establishment, legal, valuation and review fees | List the same fees | The headline rate does not show total cost. |
| LVR and security | Record accepted value and security pool | Record accepted value and security pool | One offer may require more equity or more property security. |
| Covenants and annual reviews | Record reporting obligations | Record reporting obligations | The lighter-looking offer may carry more ongoing conditions. |
| Exit and early repayment | Record break, deferred or discharge costs | Record the same costs | Your planned refinance or sale can change which offer is cheaper. |
On a phone, swipe sideways to compare every column.
If you are still at the broader comparison stage, commercial property loan rates covers pricing context. The offer itself should still be read as a package of term, repayment, security, covenants and exit costs.
What does interest-only actually cost, and what happens at reversion?
Interest-only lowers the scheduled repayment during the interest-only period but usually increases total interest and leaves a larger principal balance to deal with later. The cash-flow benefit is real. So is the reversion risk.
Some commercial products also charge a higher rate for interest-only or apply different LVR settings. The relevant comparison is therefore not simply IO repayment versus P&I repayment. It is IO repayment now, total interest, equity position, post-IO repayment and the balance still due at facility maturity.
Does interest-only always mean a higher rate or lower LVR?
No. There is no market-wide interest-only surcharge or LVR haircut. Current published products show both outcomes. One Australian bank commercial rate page lists the same variable rates for principal-and-interest and interest-only repayment types, while one specialist commercial product publishes a 0.50 percentage-point interest-only loading and an 80% maximum LVR on that product. The correct comparison is therefore product by product: rate, LVR, term, fees, security and exit conditions together. Sources: Australian bank commercial rate page and specialist commercial product page, read 18 September 2026.
Is the reversion tested on interest cover or debt service cover?
Both, at different points, and the shift between them is the reversion. An interest cover ratio measures the property's net income against the interest payable. A debt service cover ratio measures it against the full debt service, principal and interest together. The two are used interchangeably in a lot of commentary and should not be, because an interest-only facility is assessed on interest cover while the period runs and on something much closer to debt service cover once principal enters the repayment.
The practical consequence is the one borrowers miss. A property that clears its interest cover ratio comfortably today can fail the reversion test without its income having moved at all, purely because the denominator changed. On a lease doc file the lease answers that question, and a lease that has run down between settlement and reversion is the risk rather than the rate. On a full doc file the trading business answers it.
Can you make extra repayments or redraw while the loan is interest-only?
On some commercial and business loan products, yes, but the feature depends on the product and whether the rate is variable or fixed. Current Australian business-loan guidance shows variable-rate facilities that allow extra repayments and redraw, while fixed-rate facilities can restrict redraw and can trigger break costs or other charges when extra repayments are made. Extra money left against the loan can reduce the outstanding balance used to calculate interest, but it does not by itself rewrite the contractual interest-only period. Check the offer for redraw availability, minimum redraw amounts, fixed-rate restrictions and whether an offset facility actually exists on that product. Sources: current Australian business-loan product page and current business-loan repayments and redraw guidance, read 18 September 2026.
Illustrative repayment example
- Facility$1,500,000 at an assumed 7.25% p.a., 15-year total term. Example only, not a current rate or quote.
- P&I from day oneAbout $13,693 per month over 15 years.
- Interest-only for first 3 yearsAbout $9,063 per month while the full $1,500,000 balance remains outstanding.
- Repayment after 3-year IO periodAbout $15,626 per month if the full balance then amortises over the remaining 12 years, roughly 72% above the IO payment.
- Extra lifetime interest in this illustrationAbout $111,713 more than P&I from day one, before fees and any rate changes.
The key phrase is remaining 12 years. Once three years have been spent on interest-only, the same principal has less time left to amortise. That is why the repayment after reversion can be materially higher even if the interest rate has not changed.
An interest cover ratio and a debt-service measure should also not be treated as the same thing. Interest cover compares income with the interest expense. Once principal enters the scheduled repayment, the lender may use a debt-service or other lender-specific serviceability test that captures the higher repayment. A property can cover interest comfortably and still have a reversion problem.
For tax, the Australian Taxation Office's long-standing position is that the use of the borrowed funds is central to the character of the interest. An interest-only structure does not make interest deductible by itself. Confirm your own circumstances with your accountant.
What if the interest-only period offered is shorter than you asked for?
First identify the constraint, then decide whether it can actually move. A shorter period is not automatically a bad offer. It can be the lender telling you where the file stops fitting its policy.
There are four common buckets. If the lease is the problem, an unexercised option or verbal renewal intention usually does less work than a signed extension. If the reversion repayment is the problem, asking again without changing the numbers will not fix it. If gearing is the problem, a lower loan amount or different security position may matter. If the property itself is specialised, another lender may have a different appetite, but the trade-off can appear in rate, fees, LVR or term elsewhere.
Read the offer in this order
Do this before asking for a longer period or applying somewhere else.
- Is the interest-only period shorter because of the lease?Compare the firm lease term and WALE with both the interest-only end date and facility maturity.
- Does the file still service when principal repayments start?Model the actual remaining amortisation period, not a fresh 25 or 30 years unless the offer says that is what applies.
- Did interest-only change the LVR, rate or fees?A longer period can come with a pricing or equity trade-off.
- Is the facility maturity the real problem?If maturity and IO expiry are the same date, you may be looking at renewal or refinance rather than simply a repayment-type change.
- What fact would need to change for the lender to change its answer?A lease renewal, lower limit, stronger evidence, lower gearing or different security can change a credit decision. Repeating the request usually does not.
General information only. The lender's credit policy and your actual offer govern.
If the offer is already in front of you, compare the structure rather than chasing the longest number. A three-year interest-only period with a workable maturity and clean refinance path can be safer than a longer period attached to a short facility, higher fees or a difficult balloon.
What should you give a lender to support a longer interest-only period?
Give the lender the reversion plan before it has to ask for one. The strongest submission shows why interest-only is needed, what happens when it ends and which evidence supports that answer.
For a tenanted property
- Current lease and any executed variations or renewals
- Rent roll or tenancy schedule for multi-tenant property
- Outgoings and net income used in the interest-cover calculation
- Current property details and any recent valuation already held
For an owner-occupied property
- Current financial statements and tax evidence where full doc applies
- Current BAS, bank statements or other alternative evidence where policy allows
- Existing debt commitments and current facility statements
- A clear post-interest-only repayment or refinance calculation
Then add the part most applications leave implicit: why this period, and why this length? If the request is three years because a fit-out and equipment program runs for three years, say that. If the plan is to renew a lease before year two and refinance once the new lease is in place, say that. If the intended exit is a sale, name the event that makes the sale realistic rather than writing only "sell property".
The lender does not need a glossy document. It needs an answer it can put into a credit submission: current repayment source, requested IO period, reason for the period, post-IO repayment or exit, and evidence.
For an existing facility approaching expiry, the document pack is covered more fully in commercial interest-only expiry and refinance.
What should you track after the loan settles?
Track the interest-only end date, facility maturity, fixed-rate end date and any annual review separately from day one. Those four dates can create four different decisions.
During the interest-only period, the debt is not reducing on schedule. That means a lower valuation, shorter lease or weaker trading result can matter more at the next review because there is less principal reduction creating headroom. If your strategy depends on refinancing at the end, a refinance also depends on the property and serviceability still fitting another lender's policy at that future date.
A practical sequence is to model the reversion well before it arrives, then decide whether the existing facility still suits. If the scheduled reset is affordable and the facility continues, doing nothing may be a valid contractual outcome. If you want another interest-only period, a different rate or a different lender, start early enough that valuation, financials, credit and settlement do not become one deadline.
The four-date rule: write down the IO expiry, facility maturity, fixed-rate expiry and annual review date on the day you settle. Then model the repayment after IO rather than waiting for the lender's reminder.
If the interest-only date is approaching, use the dedicated expiry and refinance guide rather than treating this origination guide as the whole answer.The refinance mechanics are also covered in refinancing an interest-only commercial facility.
Can an SMSF still use interest-only commercial property finance?
Yes, but the 10 August 2026 change means a new LRBA over real property caught by the amendment must be for business real property. The change narrows what an SMSF can borrow to acquire. It does not ban limited recourse borrowing arrangements altogether, which is worth stating plainly because a large share of the commentary published since the announcement is titled as though it did. A trustee who believes borrowing is banned will not ask about a transaction that is still open to them.
Schedule 5 of the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 commenced on 10 August 2026 and amended section 67A(2) of the Superannuation Industry (Supervision) Act so that, for real property, the acquirable asset must be business real property. The transitional provisions preserve certain pre-commencement arrangements, qualifying refinances and acquisitions under earlier arrangements.
Do not equate "commercial property" on a listing with "business real property" under the Act. The statutory test turns on the property's use and the superannuation rules. That is a legal and advice question, not a lender product label.
For the finance pathway and the post-10 August rule in full, use SMSF property loans and business real property. If the transaction is your fund buying premises used by the member's business, buying your premises from your landlord covers the wider purchase sequence.
Frequently Asked Questions
Yes. Interest-only is available on Australian commercial property loans. There is no single legislated maximum period for a business-purpose commercial facility. Current published product examples include up to five years on one Australian bank commercial product and up to eight years on one specialist commercial property product, but those are product-specific ceilings rather than a market maximum.
There is no one Australian maximum. Current published examples include five-year and eight-year product ceilings, while the period actually approved can be shorter. The main constraints are the repayment source, firm lease term or WALE, gearing, security type, facility maturity and whether the loan still works when principal repayments begin.
Sometimes. Some current business-loan products allow a borrower to switch repayment type during the life of the loan, subject to limits on new or extended interest-only periods. Whether your lender will approve the change as a variation, what it will reassess and whether pricing or term changes are lender and facility specific.
Often, where rent is the main repayment source. The firm remaining lease term and WALE matter because the lender is comparing the durability of rental cash flow with the loan maturity. An unexercised option is not the same as an executed renewal, and a vacant property needs another evidenced repayment source.
Yes. The lender is usually assessing the trading business rather than rental income. That makes current business cash flow, the post-interest-only repayment and the overall debt position more important than the tenancy profile.
Yes, depending on the product. Lease-doc lending relies more heavily on the rent and lease profile, while low-doc lending uses alternative evidence of business income. The documentation path changes what the lender can verify, so it can change the interest-only term, LVR, price and product choice.
No. The interest-only period is the period during which scheduled principal reduction is not required. The facility term is the legal period before the loan matures. A commercial loan can also have a separate amortisation period, fixed-rate period and annual review date.
If the facility continues beyond the interest-only date, it will commonly move to principal and interest over the remaining amortisation or facility structure unless the lender approves a variation. If interest-only expiry and facility maturity fall together, the balance may instead need to be renewed, refinanced, sold down or repaid.
Sometimes, but do not treat an extension as automatic. The lender can make a fresh credit decision using the financials, conduct, valuation, gearing, lease position and repayment plan that exist at that time. Starting well before expiry gives more room to fix a weak point or compare a refinance.
Usually over the life of the debt because the principal stays higher for longer. Product pricing can also differ. Current published products include both a commercial product that prices principal-and-interest and interest-only at the same variable rate and another commercial product that publishes a 0.50 percentage-point interest-only loading. Compare the whole facility rather than assuming one universal rule.
Sometimes. Current Australian business-loan products show that variable-rate facilities can allow extra repayments and redraw, while fixed-rate facilities may restrict redraw and can create break costs or other charges. The exact feature set is product specific, so check the loan offer rather than assuming a commercial interest-only facility works like a home loan.
The remaining interest-only period does not automatically transfer to a new lender. A refinance is a fresh credit decision, and the outgoing facility may still have discharge costs, fixed-rate break costs or a deferred facility fee depending on the contract. Request a current payout figure and compare the exit cost before choosing an offer because it has a longer interest-only period.
No. The debt-to-income limit effective 1 February 2026 applies to residential mortgage lending by authorised deposit-taking institutions, and the serviceability buffer is a residential lending standard. Neither reaches a business-purpose commercial facility, and neither applies to non-bank lenders at all. The regulator has said it holds powers over lenders it does not regulate where they materially contribute to financial stability risk, and that it has not used them. Commercial property does appear in the same macroprudential attachment, but the loan types named there are land acquisition, development and construction, and lending for the purposes of investment. Interest-only is not among them.
An interest cover ratio measures a property's net income against the interest payable on the facility. A debt service cover ratio measures it against the full debt service, principal and interest together. The two are often used interchangeably and should not be, because the difference is the reversion. An interest-only facility is assessed on interest cover while the interest-only period runs and on something much closer to debt service cover once principal enters the repayment, so a property that clears its interest cover ratio comfortably today can fail the reversion test without its income having changed at all.
Sources
The regulatory and legislative claims on this page were checked against primary sources. Product documents are used only to show that a particular commercial product currently publishes a particular structure, not to state a market-wide rule.
Primary and product sources checked 18 September 2026
- Australian Prudential Regulation Authority, APG 112 Capital Adequacy: Standardised Approach to Credit Risk. Supports the separation of residential and commercial property treatment, the property-cash-flow test and the assessment of tenancy profile relative to loan maturity, including WALE on multi-tenant property. apra.gov.au
- Australian Prudential Regulation Authority, media release of 19 December 2018 removing the interest-only benchmark for residential mortgage lending. Supports the 30 per cent benchmark, its March 2017 start, its residential scope and its removal effective 1 January 2019. apra.gov.au
- Australian Prudential Regulation Authority, macroprudential policy materials for the attachment to the credit risk standard. Supports the residential scope of the serviceability buffer and the separate commercial property loan-type list, in which interest-only does not appear. apra.gov.au
- Australian Prudential Regulation Authority, Getting the balance right, consultation on credit risk capital opened 29 June 2026 and closed 7 September 2026, proposed effective date 1 April 2027. Draft, not in force. Noted because it revises APG 112 without changing the commercial property segmentation or the interest-only position. apra.gov.au
- Australian Prudential Regulation Authority, activation of debt-to-income limits, effective 1 February 2026. Supports that the activated DTI limits apply to residential mortgage lending by authorised deposit-taking institutions. apra.gov.au
- National Consumer Credit Protection Act 2009, Schedule 1, National Credit Code. Supports the consumer-purpose and residential-investment scope and the business-purpose boundary. legislation.gov.au
- Treasury Laws Amendment (Tax Reform No. 1) Act 2026, commencement table and Schedule 5. Supports the 10 August 2026 commencement, the business real property requirement for real property under new arrangements caught by the amendment, and the transitional carve-outs. legislation.gov.au
- Australian Taxation Office, Taxation Ruling TR 95/25. Supports the general principle that the deductibility character of interest turns on the use of borrowed funds and the income-producing or business purpose. ato.gov.au
- Current Australian bank commercial product page. Used as a product-specific example of interest-only up to five years on eligible commercial investment facilities. commercial product page
- Current specialist commercial property product page. Used as a product-specific example of interest-only up to eight years, a published 80% maximum LVR and a 0.50 percentage-point interest-only rate loading. commercial product page
- Current Australian business-loan guidance. Used as a product-specific example that repayment type can be switched during the life of a loan subject to limits, and that variable-rate business facilities can allow extra repayments and redraw. interest-only business-loan guide and business-loan product page
- Current Australian business-loan repayments and redraw guidance. Used as a product-specific example of extra repayments and redraw on variable facilities and break-cost or redraw restrictions on fixed facilities. repayments and redraw guidance
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