Understand the later repayment step-up
An interest-only period can make the early cash commitment on a home or investment loan look lower because repayments cover interest, not the amount borrowed. The loan balance generally remains unchanged throughout that period.
When principal and interest starts, the same balance must be repaid over fewer years. This calculator is a way to test that change before comparing products or committing to a loan structure. Consider whether income, vacancies for an investment property and a higher-rate scenario could still be manageable. It is an illustration, not a lender assessment or a recommendation.
How to read the results
Post-IO repayment is the estimated monthly principal-and-interest payment after the interest-only period. Interest-only repayment is the monthly interest charge during that earlier period, and repayment shock is the dollar difference between those two figures.
Total interest combines interest charged in both modelled phases. It is useful for comparing scenarios, but it is not a loan quote: fees, changing rates, redraws, offset balances and a lender’s daily-interest method are outside this calculation. Testing a shorter interest-only period shows how quickly the later repayment can change.
Worked example
With the default $650,000 loan, a 6.75% interest-only rate for five years and a 30-year total term, the interest-only repayment is $3,656 per month. No principal is reduced in those five years.
At the same 6.75% post-interest-only rate, the remaining 25 years produce a post-IO repayment of $4,491 per month: a $835 monthly repayment shock. The modelled total interest is about $916,652.
Assumptions and limitations
- The initial loan balance remains $650,000 during the entire interest-only period.
- Interest is calculated monthly from a constant nominal annual rate.
- Principal-and-interest repayments begin immediately after the interest-only period.
- The post-interest-only repayment clears the unchanged balance over the remaining term.
- Establishment, ongoing and discharge fees are excluded.
Frequently asked questions
Does interest-only mean the loan is cheaper?
It can lower early repayments, but it does not reduce the principal and can increase total interest compared with repaying principal sooner.
Can the post-interest-only rate be different?
Yes. Enter a separate post-interest-only rate to test a scenario; the actual rate and lender recalculation may differ.
Does this include an offset account?
No. It assumes no offset balance, redraw, extra repayment or change to the loan balance.
This calculator and supporting information provide general estimates only. They do not take account of every product rule, tax consequence or personal circumstance and are not financial, tax, credit or legal advice.