Quick answer
An interest only private loan is a property-secured loan from a non-bank lender where you pay only the interest during the term, then repay the principal at the end, usually by refinancing or selling. It keeps outgoings low while a plan plays out. Ownright Custom Finance arranges interest only private loans Australia-wide.
Key points
- Only interest is paid during the term, so regular outgoings stay lower
- The principal is repaid in one go at the end, so the exit plan is the heart of the deal
- Common for sales, refinances, developments and tax or business cash-flow problems
- Interest can sometimes be prepaid or capitalised instead, depending on the lender
- Suits
- Borrowers with a clear sale, refinance or project exit
- Security
- A first or second registered mortgage over property
- Repayment style
- Interest only, principal due at the end of the term
- Australia-wide
- Yes
What is an interest only private loan?
Most people think of a home loan as something that shrinks every month. An interest only private loan works differently. You pay the interest during the term, the balance stays the same and the whole principal falls due at the end. Because of that, it is usually short or medium term and built around a specific plan for how the loan will be cleared.
The lender is a private or non-bank lender, and the loan is secured by a mortgage over property. That might be a first mortgage or a second mortgage behind an existing one. Our private mortgages overview explains the wider category, and our interest only vs principal and interest guide sets out the two styles side by side.
Why choose interest only for a private loan?
The appeal is simple: lower regular outgoings while something else happens. Sale of a property. A refinance waiting on paperwork. A project that is yet to generate income. A business turning around after a tough quarter. Putting less cash into repayments leaves more for the thing that will clear the loan.
It also suits borrowers who are asset rich and cash poor. A property owner may have plenty of equity but limited ongoing income. A lender who focuses on the property and the exit can work with that, where a bank assessing repayment capacity might not.
When does it work well?
- Selling a property. The loan funds a purchase, renovation or debt payout until the sale settles.
- Waiting for a refinance. Time is needed to lodge returns, restructure income or tidy a credit file before a bank will lend.
- Development and renovation. Funds are needed before the project is complete and can be repaid from sale or revaluation.
- Tax and business cash flow. A short loan clears the pressure while the business recovers. See second mortgage for business.
- Settlement gaps. A bridging structure can carry you between two settlements.
- Estate or property settlement. Funds are needed until an asset is released or sold.
Interest only private loan versus other structures
| Structure | What you pay during the term | What is due at the end | Often suits |
|---|---|---|---|
| Interest only, paid monthly | Interest each month | The full principal | Borrowers with regular cash flow and a clear exit |
| Interest prepaid | Interest taken from the loan at the start | The principal | Borrowers who prefer no monthly payments |
| Capitalised interest | Nothing during the term | Principal plus accrued interest | Short projects with no income yet |
| Principal and interest | Interest and principal each month | Remaining balance or nothing | Longer-term borrowers with steady income |
The second and third structures are covered on our capitalised interest loans page, and bank-style options are covered in interest only home loans.
What do private lenders look at?
Equity and value. The loan amount against the property value, after any first mortgage, is the starting point. A lender usually wants a buffer in case values move or a sale takes longer than expected.
The exit strategy. Because the principal does not reduce, the plan to repay it is central. Sale contracts, bank pre-approvals or clear project timelines all help.
The borrower. Experience, guarantors and credit history matter, although private lenders often read these differently to banks.
The property. Location, type, condition and saleability matter. Rural, commercial and unusual properties can be financed, but the lender pool is narrower.
The term. A realistic time frame for the exit, with allowance for delays.
Our guide on how private lenders assess your loan explains the typical checklist.
What are the risks of interest only private lending?
- The principal remains in full, so the exit has to happen
- A short term gives little room for delay
- If a sale or refinance falls over, you may face default charges or extension costs
- Property values can change during the term
- Fees and costs are generally higher than a standard bank loan
- The property used as security is at risk if the loan is not repaid
None of this means avoid it. It means use it with open eyes, a safety margin and a plan B. Our guide on bridging loan exit strategies shows how to build a plan that survives a delay.
What happens if the exit is delayed?
It happens, particularly with sales and refinances. Valuations come in low, buyers pull out, a bank takes longer than promised. If your exit is slipping, tell the lender early. Some lenders will agree to an extension, sometimes with extra fees or conditions. Others will not. We help borrowers have that conversation before the term runs out, and we also look at replacing the loan with another lender if necessary. The earlier the call, the more options exist.
How does Ownright arrange interest only private loans?
Trevor Scott has spent over 40 years in finance, and the team knows that the loan structure is only half the story. We begin with your exit: what needs to happen for the principal to be repaid, and how likely is each step. Then we look at which lenders suit the property and purpose, how interest is paid and what the cost and risks look like in practice.
We work Australia-wide with lenders across the private market, including some most brokers never meet. Speed depends on the lender, the security and how fast documents arrive, and we tell you honestly if a deadline looks unrealistic. For urgent files, our fast second mortgage and short-term mortgages pages explain related paths.
An illustration
Illustrative scenario only. A seller has accepted an offer on one property but needs to buy another before settlement. A broker could arrange an interest only private loan secured on the property being sold, with interest paid monthly from other income, and an exit based on the sale proceeds at settlement. A contingency, such as an extension option or a bank refinance, is agreed in case settlement is delayed.
What mistakes should I avoid?
- Taking a loan without a written exit plan
- Assuming the property will sell at the hoped-for price and date
- Choosing a term that leaves no room for delays
- Ignoring the fees on extensions and late exits
- Offering shared property without every owner understanding the risk
- Using a short-term interest only loan as a permanent fix
What documents should I have ready?
- Photo ID and ownership details for the property
- Title, rates notice and any existing loan statements
- A contract of sale, bank pre-approval or project plan supporting the exit
- Income evidence or an explanation if income is irregular
- A list of assets and debts (see our documents guide)
Ready to keep repayments light while your plan comes together?
Sounds like you’re looking for an interest only private loan. We’re the lending experts in loans built around an exit, so click the button below and see if you qualify with a plan that holds together.
How it works, step by step
- 1
Step 1
Tell us the purpose, the property and how and when the loan will be repaid.
- 2
Step 2
We compare interest paid monthly, prepaid interest and capitalised options.
- 3
Step 3
We approach private lenders who suit the security, the purpose and the timeline.
- 4
Step 4
The loan is documented and settled. We keep in touch so the exit stays on track.
Frequently asked questions
What is an interest only private loan?
It is a loan from a private or non-bank lender, secured by property, where regular payments cover interest only and the full principal is due at the end. Terms are often short or medium. Because the principal is not reduced during the loan, lenders want a believable exit plan before approving it.
How is it different from an interest only bank loan?
Bank interest only loans usually revert to principal and interest after a set period and are assessed on ongoing income. Private interest only loans are often shorter, priced on risk and the property, and built around a specific exit such as a sale. The assessment leans on equity and the plan.
What happens at the end of the term?
The principal is due. Most borrowers repay by refinancing to a bank loan, selling the property or another asset, or using funds from a project. If the exit is delayed, talk to the lender and to us early. Extensions may be possible, but they depend on the lender and the circumstances.
Can the interest be paid upfront or added to the loan instead?
Sometimes. Some lenders offer interest in advance, taken from the loan funds at the start, or capitalised interest, added to the balance. These reduce cash outflow during the term but increase the amount owed. Our capitalised interest page explains the trade-offs.
Is interest only private lending risky?
It carries real risk. The principal does not shrink, the term is short and a failed exit can lead to default and loss of the property. Used with a clear plan and a safety margin, it can be a useful tool. We discuss the downside openly before recommending a path.
Can I get an interest only private loan with bad credit?
Sometimes. Private lenders rely heavily on property equity and the exit, so a credit blemish does not always end the conversation, although terms may differ. Tell us what happened and when, and we will approach lenders that read credit history in context.