Interest-Only vs P&I Calculator
Compare interest-only and principal & interest loans. See total interest cost and the payment shock when IO ends.
Disclaimer
This calculator provides estimates for general information purposes only. Results should not be relied upon as professional financial, tax, or legal advice. Tax rates and thresholds are based on publicly available ATO data and may change. Always consult a qualified tax agent or financial adviser for advice specific to your circumstances.
Frequently Asked Questions
Why are IO loans more expensive than P&I?
When does IO make sense?
What is 'payment shock'?
Can I make extra repayments on an IO loan?
What is Interest-Only vs P&I?
A side-by-side comparison of an Interest-Only (IO) loan versus a Principal & Interest (P&I) loan over the same total term. Shows the lower cash-flow during the IO period, the 'payment shock' when IO ends, and the lifetime extra interest cost of the IO structure.
How this calculator works
Enter the loan amount, the IO interest rate, the P&I rate, the IO period length, and total loan term. The calculator computes: (1) the P&I monthly repayment if you went P&I from day 1, (2) the IO monthly payment during the IO period, (3) the new P&I payment when IO ends and the residual principal must be repaid over a shorter remaining term, and (4) the total interest cost of each scenario.
Why IO Loans Cost More
After APRA's 2017 macroprudential intervention, banks added a 'risk premium' of 0.20–0.50% to IO investor loans to discourage them. APRA capped new IO lending at 30% of total mortgage flows industry-wide. The premium reflects regulatory pressure plus genuinely higher risk to the lender — IO borrowers haven't reduced principal, so any property price fall hits negative equity faster.
When IO Makes Sense
Almost exclusively for investment properties where: (1) you're maximising tax-deductible interest by NOT paying down deductible debt, (2) you're channelling extra cashflow into NON-deductible debt (your owner-occupier mortgage) via an offset account, (3) you're building a property portfolio and need cashflow to absorb new acquisitions, or (4) you're managing construction-loan cashflow during a build. For owner-occupier homes, IO almost never makes financial sense.
Payment Shock Mechanics
When IO ends, the full principal must be repaid over the SHORTER remaining term. Example: $700,000 loan, 30-year total term. P&I from day 1 at 6.10% = $4,239/mo. IO 5 years at 6.50% = $3,792/mo (saves $447/mo). But after IO ends, the $700,000 must amortise over the remaining 25 years at 6.10% = $4,581/mo — a 21% jump from the IO payment, $342/mo MORE than P&I from day 1 would have been.
APRA Stress Testing
Banks must now stress-test IO loans for affordability of the post-IO P&I payment. The serviceability buffer (currently 3% above the actual rate) is applied to the post-IO scenario, not just the IO payment. This makes IO loans harder to qualify for than P&I, especially for owner-occupiers.
Refinancing Out of IO
Many investors refinance to extend IO when the period ends — either with the same lender (re-application required) or by switching banks. Each refinance restarts the principal-repayment clock, so a borrower can theoretically run IO for 10–15 years before being forced into P&I. APRA limits how often banks will renew IO, but refinancing to a new bank usually works.
Updated for the 2025-26 financial year (1 July 2025 to 30 June 2026).
All calculations are performed in your browser — your data never leaves your device. Results are for general guidance only and should not be considered professional financial advice.
Built and maintained by Konstantin Iakovlev. Data sourced from the ATO and official Australian government sources.