Interest-only vs P&I calculator

A Principal & Interest (P&I) loan: each repayment is part-interest, part-principal — over 30 years the loan amortises to zero. An Interest-Only (IO) loan: for an agreed period (typically 1-10 years), you only pay the interest — the principal balance doesn't reduce. After IO ends, the loan reverts to P&I over the REMAINING term, which means higher repayments than the original because you have less time to pay it off.

Three main reasons. (1) Lower monthly cashflow during the IO period — important when you're negatively geared and want to minimise out-of-pocket cost. (2) Maximises tax deductions — interest is deductible, principal isn't, so 100% of your repayment is tax-deductible during IO. (3) Frees cash for the next deposit — instead of paying principal on this property, you save the difference toward property 2. The trade-off: you pay more total interest over the loan life AND you face a payment step-up when IO ends.

Usually 30-50% higher than your IO repayments. Concrete example: $600k loan at 6.5%, 5y IO then 25y P&I. IO repayments: ~$3,250/month. After IO ends: ~$4,050/month (25% higher). That gap widens at higher rates and longer IO periods. The calculator's LoanSummary card shows your specific scenario's step-up plus the total interest cost difference over the full hold period.

Yes — almost always. Total interest over a 30-year loan: an IO+P&I structure typically pays $20,000-$50,000 more interest than a straight P&I over the same period, depending on IO duration and loan size. The reason is simple: during the IO years, you carry the full principal balance for longer, so you pay interest on it for longer. The IO "discount" on monthly cashflow is real, but it's borrowed from your future self.

In 2017 APRA capped new IO loans at 30% of a lender's residential book and at 80% LVR (vs 95% LVR available for P&I). Those caps were partially lifted in 2018 but most major banks now apply tighter serviceability tests for IO loans — they assume you're paying P&I-equivalent repayments for assessment purposes. Practical effect: harder to qualify for IO at high LVR, and harder to extend IO when the original term ends. Talk to a broker about current lender appetite if IO is critical to your strategy.

Sometimes, but it's harder than it used to be. Lenders treat IO extensions as a new credit application — fresh serviceability test, fresh LVR assessment. If your situation has deteriorated (lower income, more debt, higher rates) or LVR has crept up, the application may fail. Investors who plan to roll IO indefinitely should NOT assume it's a given. The safer plan: budget for the P&I revert from day 1, and treat any further IO extension as a bonus.

Generally three scenarios. (1) You're building a portfolio — IO frees cashflow on existing properties to deposit on new ones. (2) Your income is temporarily reduced (parental leave, gap year, career change) and you need to minimise outflow. (3) You expect to sell within the IO period — paying principal you'll return to the bank anyway via sale is pointless. For long-term hold of a single property with stable income, P&I is usually the right call: lower total interest, no step-up shock.

The calculator uses textbook amortisation formulas — accurate for a single static loan rate. Real-world IO loans often have a small rate premium (0.05-0.20pp higher than P&I from the same lender) that's not modelled here; bump the interest rate up slightly for IO if your bank does this. Also doesn't model partial IO (e.g. interest-only on the principal portion of a split loan) or fixed-rate periods with different IO/P&I behaviour. Talk to your broker for a quote-accurate comparison.