Calculate interest-only home loan repayments, compare against principal-and-interest, and see the repayment increase when your interest-only period ends.
📖 16 min read · ⏱️ Calculator time: ~45 seconds
| Metric | Value |
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Results are estimates only. Actual repayments depend on your lender's exact terms — confirm with your lender. Assumes a constant interest rate; actual costs may vary if rates change.
See whether refinancing to a lower rate before your IO period ends could be worth it.
An interest-only (IO) mortgage lets you pay only the interest charged on your loan for a set period — commonly 1 to 10 years in Australia — without reducing the principal balance. After this interest-only period ends, the loan automatically reverts to standard principal-and-interest (P&I) repayments, recalculated over whatever term remains. The Repayment Shock Warning in the calculator above shows exactly how much your repayment will jump when that happens.
During the IO period, your repayment covers only the interest accrued — your loan balance stays exactly the same (unless you make voluntary extra repayments). Once the IO period ends, the lender recalculates your repayment to fully amortise the remaining balance over the remaining loan term. Because that remaining term is shorter than the original term, and the full balance still needs to be repaid, this new P&I repayment is meaningfully higher than what a P&I loan would have required from day one.
The trade-off is straightforward: interest-only gives you lower repayments and more cash flow flexibility now, at the cost of paying more total interest over the life of the loan, since principal reduction is delayed. The Interest-Only vs Principal & Interest panel in the calculator above quantifies this exactly for your own numbers — in a typical scenario, a 5-year IO period on a 30-year loan adds tens of thousands of dollars in extra lifetime interest compared to P&I from day one.
Interest-only structures are especially common for Australian investment properties, since the interest is generally the tax-deductible component of the loan repayment. Set Loan Type to "Investment property" in the calculator above to see the Investment Cash-Flow Analysis panel, which frames your repayment in terms of monthly cash outflow before and after the IO period. This calculator provides general information only, not tax advice — consult a registered tax agent about your specific deductibility position.
The core appeal of interest-only lending is cash flow: a lower required repayment during the IO period leaves more available for other purposes — whether that's servicing multiple investment properties, managing a business, or simply having more breathing room during a specific life stage. The trade-off, as covered above, is a higher total interest cost — so interest-only is best used deliberately and temporarily, not as a default long-term strategy.
"Repayment shock" describes the sometimes-significant jump in required repayment when an interest-only period ends and the loan reverts to P&I. This happens because the full remaining balance must now be repaid over a shorter remaining term. The Repayment Shock Warning panel in the calculator above quantifies this precisely — in the base example, a $600,000 loan at 6.5% sees repayments rise by roughly 25% once a 5-year IO period ends. Longer IO periods on the same loan term produce even larger jumps, since the remaining amortisation window shrinks further.
Even though interest-only loans don't require principal repayment, most Australian lenders allow voluntary extra repayments during the IO period. These directly reduce your balance — and therefore both your total interest cost and the size of the eventual repayment shock. The Extra Repayment Impact panel in the calculator above shows this precisely: even a modest extra repayment during the IO period can meaningfully soften the transition to P&I.
An offset account is especially valuable during an interest-only period, since it directly reduces the balance your interest-only repayment is calculated on — unlike a P&I loan, where offset primarily accelerates payoff rather than reducing the immediate repayment amount. See our dedicated Offset Account Calculator for a deeper look at how offset accounts work.
As your interest-only period approaches its end, refinancing is worth considering — either to extend the IO period with a new lender (subject to serviceability assessment), switch to a lower rate, or restructure the loan entirely. Use our dedicated Refinance Calculator to compare your options before your repayment jumps.
| Scenario | Key detail | What to notice |
|---|---|---|
| Owner occupier | $600k loan, 5yr IO, 30yr term | ~25% repayment increase after IO ends |
| Investment property | Same loan, cash-flow framing | See Investment Cash-Flow Analysis panel |
| 5-year IO period | Shorter IO, smaller shock | Less total interest than 10-year IO |
| 10-year IO period | Maximum IO period | Largest repayment shock and highest total interest |
| With offset account | $100k offset balance | Substantially lower IO repayment and total interest |
| With extra repayments | $300/month extra during IO | Reduced balance and softened shock at IO end |
| High interest rate | Rate +1.5% | Both IO and P&I repayments rise proportionally |
| Refinancing scenario | Compare against Refinance Calculator | May reset or extend the IO period with a new lender |
Enter each of these scenarios into the calculator above (adjusting IO period, loan type, offset and extra repayment fields) to see exact figures for your own situation.
| Term | Meaning |
|---|---|
| Interest-only (IO) period | The set period during which only interest is repaid, with no principal reduction. |
| Principal & Interest (P&I) | Standard repayment structure where each payment reduces both interest owed and the loan balance. |
| Repayment shock | The jump in required repayment when an IO period ends and the loan reverts to P&I. |
| Remaining term | The loan term minus the IO period, used to recalculate the P&I repayment. |
| Offset account | A linked account whose balance reduces the interest charged on your loan. |
| Serviceability | A lender's assessment of your ability to afford loan repayments, including after any IO period ends. |
Interest-only lending is a legitimate and widely used tool — particularly for property investors — but it comes with a real, quantifiable cost: more total interest and a repayment jump you need to plan for. Use the calculator above to see your exact numbers, model the effect of an offset account or extra repayments, and compare against a straight principal-and-interest loan before deciding. Pair it with our Mortgage Payoff and Refinance calculators to plan your full strategy.
What is an interest-only mortgage?
A loan structure where you pay only the interest charged for a set period (commonly 1-10 years in Australia), without reducing the principal balance, before reverting to standard principal-and-interest repayments.
How is an interest-only repayment calculated?
Interest-only repayment = (loan balance minus any offset balance) × the periodic interest rate. Since no principal is repaid, this figure stays constant throughout the IO period unless you make extra repayments or your rate changes.
What happens when my interest-only period ends?
Your loan automatically reverts to principal-and-interest, recalculated to fully repay the remaining balance over the remaining loan term — this produces a higher repayment, often called "repayment shock."
How much will my repayment increase after the IO period ends?
This depends on your IO period length, remaining term and interest rate — the calculator above shows this precisely; a common range is a 20-40% increase for a 5-year IO period on a 30-year loan.
Is interest-only cheaper than principal and interest?
Only during the IO period itself — over the life of the loan, interest-only costs more in total interest, since principal reduction (and the associated interest savings) is delayed.
Why do investors use interest-only loans?
Interest-only structures can maximise the deductible interest portion of an investment loan and minimise cash outflow while a property is generating rental income, though total interest cost is higher — this calculator provides general information only, not tax advice.
Can I make extra repayments during an interest-only period?
Yes, most Australian lenders allow this. Extra repayments directly reduce your balance, lowering both your total interest cost and the size of the eventual repayment shock.
Does an offset account work with an interest-only loan?
Yes — and it's especially valuable during an IO period, since it directly reduces the balance your interest-only repayment is calculated on, unlike with P&I where the main benefit is faster payoff.
What is the maximum interest-only period in Australia?
This varies by lender, but 5 years is common, with some lenders offering up to 10 years (often only for investment loans, and sometimes requiring the loan to be reassessed periodically).
Can I extend my interest-only period?
Sometimes, subject to a fresh serviceability assessment by your lender — or by refinancing to a new lender offering an interest-only period. This shouldn't be relied upon as an automatic option.
Do interest-only loans have higher interest rates?
Often yes — many Australian lenders price interest-only loans slightly higher than equivalent P&I loans, reflecting the additional risk of delayed principal reduction.
Is interest-only lending harder to get approved for?
It can be — APRA guidance has led lenders to apply stricter serviceability assessments to interest-only lending, particularly for owner-occupiers, compared to standard P&I loans.
What is repayment shock?
The significant jump in required repayment when an interest-only period ends and the loan reverts to principal-and-interest over a now-shorter remaining term.
How can I prepare for repayment shock?
Build a savings buffer ahead of time, consider voluntary extra repayments during the IO period to reduce the eventual jump, or review refinancing options as the IO period nears its end.
Does interest-only affect my loan-to-value ratio (LVR)?
Not directly through the repayment structure — your LVR depends on your loan balance and property value. Since IO doesn't reduce the balance, your LVR won't improve through repayments during the IO period, unlike with a P&I loan.
Can owner-occupiers get interest-only loans?
Yes, though lending criteria are generally stricter than for investment loans, reflecting regulatory guidance that discourages interest-only lending for owner-occupiers without a clear purpose.
What is the difference between interest-only and principal-and-interest?
Interest-only repayments cover interest only, leaving the balance unchanged; principal-and-interest repayments reduce both interest owed and the loan balance with every payment.
Does my loan balance reduce during the interest-only period?
No, not through your scheduled repayments — only through voluntary extra repayments, if you choose to make them.
How accurate is this interest-only mortgage calculator?
It uses a proper two-phase amortisation engine (interest-only, then principal-and-interest on the remaining balance and term) and has been tested against manual calculations. Confirm exact figures with your lender.
Can I switch from interest-only to principal-and-interest early?
Yes, most lenders allow this — contact your lender to request the switch, which will recalculate your repayment based on the remaining balance and term at that point.
Does refinancing reset my interest-only period?
It can, if the new lender offers a fresh interest-only period as part of the refinance — subject to their own serviceability assessment and lending criteria.
What loan term should I use for an interest-only loan?
Enter your total loan term (commonly 25-30 years) — the calculator automatically works out the remaining P&I term by subtracting your interest-only period from this figure.
Is a 10-year interest-only period a good idea?
It maximises cash flow flexibility for the longest period but also produces the largest repayment shock and highest total interest cost — compare shorter IO periods using the calculator above before deciding.
Does this calculator work for fortnightly or weekly repayments?
Yes — select your repayment frequency above and all figures (interest-only repayment, P&I repayment, and the repayment increase) are shown in that frequency.
What annual fees should I include?
Enter any ongoing package or annual fee charged by your lender — this is shown separately in the Investment Cash-Flow Analysis panel for investment property loans.
Can I compare interest rates in this calculator?
Yes — the Interest Rate Sensitivity panel above shows how both your interest-only and post-IO P&I repayments change across a range of rates around your entered figure.
Does an interest-only loan build equity?
Not through scheduled repayments during the IO period — only through property value growth (if any) or voluntary extra repayments you choose to make.
Should I choose interest-only for my first home?
This is a personal decision, but interest-only is less commonly used for first homes since it delays equity building and often faces stricter lending criteria for owner-occupiers. Weigh the cash-flow benefit against the higher total cost using the calculator above.
How does interest-only affect my borrowing capacity?
Lenders typically assess serviceability using the higher post-IO P&I repayment (not the lower IO repayment), meaning an interest-only structure doesn't usually increase how much you can borrow.
Can I have interest-only on part of my loan (a split loan)?
Some lenders offer this — a portion of your loan on interest-only and the remainder on P&I. This calculator models a single loan structure; for a split loan, run the calculator separately for each portion.
Does the interest-only repayment change if rates change?
Yes, on a variable rate loan — a rate change immediately affects your interest-only repayment, since it's calculated directly from the current balance and rate with no principal buffer.
What happens if I can't afford the higher repayment after IO ends?
Contact your lender as early as possible to discuss options — extending the IO period (if eligible), refinancing, or a hardship arrangement may be available. Acting early generally leads to better outcomes.
Is interest-only available on fixed rate loans?
Yes, many lenders offer interest-only on both fixed and variable rate loans, though terms and maximum IO periods can differ between the two.
Does the calculator account for LMI?
Not directly in this calculator — see our dedicated Home Deposit Calculator for LMI estimates based on your deposit and property value.
How does loan-to-value ratio affect interest-only approval?
Higher LVR loans (smaller deposits) generally face stricter scrutiny for interest-only approval, since the lender's risk is greater when principal isn't being reduced.
Can I use this calculator for a car loan or personal loan?
This calculator is designed specifically for Australian home loans; interest-only structures are far less common on car and personal loans, which typically require principal-and-interest repayments from the outset.
What's a realistic interest-only period for most borrowers?
1-5 years is most common and generally faces fewer lending restrictions than longer periods — compare a 5-year vs 10-year IO period using the calculator above to see the difference in total cost and repayment shock.
Does the calculator model negative gearing?
No — this calculator focuses on the loan mechanics (repayments, interest, balance). For investment property tax considerations including negative gearing, consult a registered tax agent.
Can I model a rate change part-way through the interest-only period?
Not directly — the calculator assumes a constant rate for the projection. Rerun the calculator with a new rate to see the effect of a rate change at any point.
Why is my repayment increase percentage so high?
Longer interest-only periods produce larger percentage increases, since the remaining amortisation window is shorter when P&I repayments begin — try reducing the IO period in the calculator above to see the effect.
Does making extra repayments during IO reduce my future P&I repayment?
Yes — since extra repayments reduce your balance before the P&I phase begins, the recalculated P&I repayment (based on a smaller balance) will be lower than it would otherwise have been.
Should I choose a shorter or longer interest-only period?
A shorter IO period generally means less total interest and a smaller repayment shock, while a longer IO period maximises cash-flow flexibility for longer at a higher total cost — compare both using the calculator above.
Can I download my interest-only repayment schedule?
Yes — use the CSV button above for the full year-by-year schedule, or the PDF button for a summary report.
Does this calculator show a yearly breakdown?
Yes — the Loan Balance and Principal vs Interest charts above, along with the exportable CSV, show year-by-year figures across both the IO and P&I phases.
Is interest-only lending riskier than principal-and-interest?
It carries different risks — primarily the repayment shock risk and the risk of paying more total interest — rather than being universally "riskier." It suits specific circumstances (like investment cash flow management) better than others.
What should I check with my lender before choosing interest-only?
Confirm the maximum IO period available, any rate premium for IO vs P&I, whether extra repayments are permitted during the IO period, and what happens (and what options exist) when the IO period ends.