Interest Only Mortgage Calculator
Three things to understand about interest only repayments
An interest only loan works differently from a principal and interest loan. The repayments may initially be lower, but that doesn't necessarily mean the loan costs less overall.
You pay the interest
During the interest only period, your required repayments generally cover the interest charged rather than reducing the principal.
The balance isn't being reduced
If you're only making the required interest payments, the original loan principal generally remains outstanding.
Repayments can rise later
When the interest only period ends, repayments can increase as you begin repaying the principal over the remaining loan term.
Compare interest only and principal and interest repayments
Use the calculator below to explore how interest only repayments could compare with principal and interest repayments based on different loan amounts, interest rates and loan terms.
Calculator results are estimates only. They don't represent loan approval, a lender quote or a recommendation that an interest only loan is suitable for you.
How do interest only home loans work?
With an interest only home loan, your required repayments during the interest only period generally cover the interest charged on the loan rather than paying down the principal.
This can mean lower required repayments during that period compared with principal and interest repayments on the same loan amount.
However, because you're generally not reducing the principal through those required repayments, you'll still need to repay the loan balance later. This can affect both your future repayments and the total interest paid over the life of the loan.
Interest only vs principal and interest
The difference isn't simply about which repayment is lower today. The two structures affect how and when you repay the loan.
Lower required repayments initially
During the interest only period, required repayments generally cover the interest rather than reducing the principal.
That can improve short-term cash flow, but the original principal generally remains to be repaid.
Repaying the loan as you go
Principal and interest repayments include both the interest charged and an amount that reduces the outstanding principal.
Required repayments may be higher initially, but you're progressively paying down the loan balance.
What happens when the interest only period ends?
This is one of the most important parts of an interest only loan to understand before choosing the structure.
Your repayments can increase
When the interest only period finishes, the loan will generally move to principal and interest repayments unless another arrangement is made with the lender.
You may then be repaying the principal over a shorter remaining loan term. Combined with any change in interest rates, that can result in a noticeable increase in the required repayment.
When using the calculator, don't just look at the interest only repayment. Pay attention to what the repayments could look like afterwards as well.
Why might an investor consider interest only?
Interest only lending is sometimes considered by property investors because the lower required repayments during the interest only period can affect cash flow.
But whether that structure makes sense depends on much more than the initial repayment. The interest rate, loan term, future repayment increase, overall lending strategy and individual circumstances all matter.
If you're considering finance for an investment property, you can learn more on our Investment Loans page.
Interest only isn't automatically better for an investment loan
A lower required repayment can look attractive, but it is important to understand the longer-term impact and compare the structure with the alternatives available to you.
Tax treatment can also depend on individual circumstances, so tax questions should be discussed with a qualified tax professional.
Look beyond the first repayment
If you're comparing interest only with principal and interest, these are some of the numbers worth thinking about.
What is the interest rate?
Compare the rates available for each loan structure rather than assuming they will be identical.
How long is the interest only period?
Understand how long you'll be making interest only repayments and how much of the overall loan term will remain afterwards.
What could the repayment become afterwards?
Consider whether the future principal and interest repayment would still be manageable within your budget.
What could the loan cost overall?
Lower repayments at the beginning don't necessarily mean lower total interest over the life of the loan.
Compare more than one scenario
Look at the loan beyond the initial repayment
Martin can help you compare interest only and principal and interest options, understand how the repayments may change over time and look at the loan structure in the context of what you're trying to achieve.
Talk to Martin about your options →