Free Tool · Australia

Interest Only vs Principal + Interest

Compare the repayment and total cost of an Interest Only loan against a standard Principal + Interest loan over the same term.

Loan details

Loan amount

P&I interest rate (%)

Interest Only rate (%) — usually ~0.25% higher

Interest Only period (years)

Total loan term (years)

Side-by-side comparison

IO monthly (during IO period)
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P&I monthly (entire term)
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IO monthly (after IO period reverts to P&I)

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Monthly cash-flow saving during IO

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Total interest — IO path

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Total interest — P&I path

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Extra interest paid by choosing IO

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Estimates only. Assumes loan reverts to P&I at the same IO rate after IO period. Actual lender terms, reverting rates, and eligibility differ.

Interest Only vs Principal + Interest — Which Is Right for You?

Interest Only (IO) keeps your loan balance unchanged for a fixed period (typically 1–5 years, up to 10 for investors). Cash-flow is lower because you pay only interest. Principal + Interest (P&I) reduces the loan balance with every repayment — each payment is a mix of interest and principal.

IO makes sense for investors maximising tax-deductible interest, short-term cash-flow management, or expected income drops. P&I is standard for owner-occupiers building equity. IO always costs more over the life of the loan because the principal isn't amortising during the IO period.

Key Considerations

IO rate is usually higher — most lenders charge 0.15–0.40% more for IO loans.
"Payment shock" on revert — when IO ends, monthly repayments can jump 30–50%.
APRA scrutiny — IO share of new lending is tightly monitored; availability tightens in hot markets.
Negative gearing — investors using IO maximise deductible interest against taxable income.