Interest Only Mortgage Calculator

Want a more accurate result?

These figures are estimates based on the numbers you enter. Your lender’s own serviceability assessment, which has to look at the repayment after the interest-only period ends, is the figure that actually decides what you can borrow.
No fee from us for arranging finance. No obligation. Takes 2 minutes

What the six numbers on this calculator mean

Three of these fields describe the loan you are comparing. Two describe how you plan to structure the interest-only period. One quietly decides almost the entire result.

Loan amount

The balance you are borrowing or currently owe. During the interest-only period this number does not move, because none of your repayment goes toward it.

Interest rate

The rate charged on the loan. Lenders in Australia commonly price interest-only loans a little higher than an equivalent principal and interest loan on the same property.

Loan term

The full length of the loan, typically 25 to 30 years. This is the term your principal and interest repayment gets recalculated over once the interest-only period is behind you.

Repayment frequency

Monthly, fortnightly or weekly. Changes how the total is split up, not the total amount of interest charged over the loan.

Interest only period

How many years you pay interest only before repayments switch to principal and interest. This is the field that decides how large the later jump in repayments will be, not just how long the lower repayment lasts.

Loan fee

Any ongoing fee charged on the loan, added on top of the interest calculation. Left at $0 by default because not every loan carries one.

What actually happens when the interest-only period ends

During the interest-only period, every dollar you pay covers interest and nothing else. The balance you owe on the last day of that period is the same balance you started with. When the loan switches to principal and interest, the lender recalculates a new repayment that pays off the full original balance, in full, over whatever term is left.
That second part is the one most explanations skip. The new repayment is not spread over the original 25 or 30 year term. It is spread over the years that remain after the interest-only period has already used some of the clock. A shorter remaining term with the full balance still owing is why the repayment jump at the end of an interest-only period is consistently larger than borrowers expect, and larger than a simple ‘now I am paying off the loan too’ explanation suggests.

Worked example: $400,000 at 5.5 per cent, 5 years interest-only

The figures below use the calculator’s own default inputs: a $400,000 loan, a 5.5 per cent annual rate, a 30 year term, and a 5 year interest-only period.

During the interest-only period (5 years)

Monthly repayment: $1,833.33

This is interest only, on the full $400,000. Nothing is coming off the balance.

After the interest-only period (remaining 25 years)

Monthly repayment: $2,456.35

Principal and interest, on the same $400,000, now spread over 25 years instead of 30.
The jump is $623.02 a month, a 34 per cent increase, on the day the interest-only period ends. Total interest over the life of this loan comes to $446,905, and total payments come to $846,905. Nothing about the rate changes at that point. The whole jump comes from principal repayments starting five years later than they would have on a loan that was principal and interest from day one.

These are estimates only. They assume the rate stays constant for the full term, which real variable rates do not.

Why the jump is bigger than it looks

It is tempting to assume the jump is just ‘the principal part gets added back in.’ It is more than that, for two reasons stacked on top of each other.
First, the full original balance is still owing, because five years of interest-only payments repaid none of it. Second, that full balance now has to be repaid over 25 years instead of the 30 the loan was originally written for, because the interest-only period has already used up five of them. A principal and interest repayment on $400,000 over 25 years is higher than the same repayment would be over 30 years, even before accounting for the fact that none of the balance was reduced in the meantime. Both effects land on the same day, which is why the jump is a step, not a gradual ramp.
The practical implication is straightforward: the interest-only period does not remove the cost of the loan, it delays where the cost shows up, and concentrates it into a shorter remaining term.

Interest-only loans and APRA: the rules behind the rate

Interest-only lending in Australia has been shaped by a specific piece of regulatory history, and it is the reason the rate on an interest-only loan is rarely identical to the rate on the same lender’s principal and interest loan.

The 2017 benchmark

In March 2017, APRA told lenders to limit new interest-only lending to 30 per cent of total new residential mortgage lending, in response to a high proportion of interest-only borrowing across the market. The benchmark was removed from 1 January 2019, once lending had settled below that threshold.

Why the rate moved and stayed

Following the measure, most banks priced interest-only loans roughly 0.40 percentage points above an equivalent principal and interest loan on the same property, according to the Reserve Bank of Australia. That gap did not disappear when the benchmark was lifted.
Two other details from that period are still relevant to how lenders assess an interest-only application today. APRA expects lenders to assess a borrower’s ability to repay the loan over the remaining principal and interest term, not over the interest-only repayment, which is the same jump this calculator is built to show. And ASIC has taken the position that an owner-occupier interest-only period generally should not run beyond five years, which is exactly the default period this calculator opens with.

Who actually uses interest-only, and when it fits

Interest-only structures show up most often on investment properties, where the lower repayment during the interest-only period frees up cash flow and the interest is often deductible against rental income; our investment property loan page covers the lending side of that in more detail. Owner-occupiers use it too, typically for a defined reason such as a short-term cash flow gap, but the same repayment jump applies regardless of who is on the loan. If you are still deciding between an interest-only structure and a standard principal and interest loan from the start, our home loan page is the better starting point.

Before you rely on this number

This calculator assumes a constant rate for the full term, on-time repayments throughout, and no offset account or extra repayments. All three assumptions are common ways the real number ends up different from the estimate, particularly the rate, since interest-only loans are more exposed to rate changes over a longer horizon.
Related tools on this site: loan repayment calculator, mortgage refinance calculator and the borrowing power calculator.

If interest-only is being considered for an investment property, investment property loans covers the lending side; for a standard purchase, start with home loans.
Sources
ASIC MoneySmart: interest-only mortgage calculator.
APRA: removal of the interest-only lending benchmark, and APRA’s original 2017 announcement of the 30 per cent benchmark.
Reserve Bank of Australia: The Expiry of Interest-only Loan Terms, on the roughly 0.40 percentage point pricing gap and the requirement to assess serviceability over the remaining principal and interest term.

About the figures on this page. The worked example uses the calculator’s own default inputs, independently checked against a standard amortisation calculation and found to match exactly. Every other figure is illustrative of how the interest-only mechanic behaves and is not a quote for any specific loan.

General information only, and not financial advice. Nothing on this page takes your objectives, financial situation or needs into account, and it is not a recommendation to choose an interest-only structure. Loanity is a credit representative and can provide credit assistance once we understand your circumstances.
STILL GOT QUESTIONS?

Interest-only mortgage calculator questions, answered

How do I calculate interest-only mortgage repayments?

Multiply the loan balance by the annual interest rate, then divide by the number of repayments per year. On $400,000 at 5.5 per cent paid monthly, that is $400,000 × 0.055 ÷ 12, which comes to $1,833.33. That figure stays flat for the whole interest-only period because the balance does not move.

It jumps to a principal and interest repayment, recalculated on the full original balance over the years remaining on the loan, not the original term. On the calculator’s own default example, that is a rise from $1,833.33 to $2,456.35 a month, a jump of $623.02, or 34 per cent.

Because two things happen on the same day: the full balance is still owing, since none of it was repaid during the interest-only years, and that full balance now has to be repaid over a shorter remaining term than the loan was originally written for. Either effect alone would raise the repayment. Together they compound.

Usually yes, and slightly higher. Following APRA’s 2017 restrictions on interest-only lending, most Australian banks began pricing interest-only loans roughly 0.40 percentage points above an equivalent principal and interest loan on the same property, according to Reserve Bank of Australia analysis, and that gap has generally persisted.

Sometimes, subject to the lender’s approval and a fresh assessment at the time, but it is not automatic and ASIC has taken the position that an owner-occupier’s interest-only period generally should not run beyond five years in total. An investment property may have more flexibility, depending on the lender.

By assessing your ability to make the repayment after the interest-only period ends, on the full balance over the remaining term, not the lower interest-only repayment. This has been the expected approach since APRA’s 2017 measures, so the number that actually determines approval is the one this calculator shows in the second column.

Correct, for the duration of the interest-only period. The balance at the end of that period is the same as the balance at the start. Any reduction in what you owe only begins once repayments switch to principal and interest, or if you choose to make additional payments during the interest-only period, which most lenders allow.

Mainly cash flow and, in many cases, the tax treatment of interest on a rental property. A lower repayment during the interest-only period frees up cash, which matters more on a property generating rental income than on a home someone lives in. Our investment property loan page covers the lending side of that decision.

The loan fee field covers an ongoing fee you enter yourself. It does not model Lenders Mortgage Insurance, application fees, or valuation fees, since those depend on the specific lender and loan-to-value ratio rather than applying uniformly to every interest-only loan.

Not on the same rate and the same total term, because the same amount of principal still has to be repaid, just later and over less time. It can free up cash flow during the interest-only years, and if the rate genuinely differs, that changes the comparison, but it is not a way to reduce the total cost of the loan on its own.

Important information about this calculator
This calculator illustrates theoretical repayment changes between an interest-only period and the subsequent principal-and-interest amortisation term. It assumes static interest rates across both phases and does not incorporate ongoing lender package fees, valuation charges, or rate differentials that often apply when switching repayment types.
In reality, interest rates change over time, and monthly repayments typically increase significantly once an interest-only term expires due to the shortened remaining loan term. Lending criteria, regulatory limits on interest-only terms, and lender policy buffers are continually updated, and this tool may not capture the most current conditions. Loanity does not guarantee the accuracy of these projections. We strongly recommend speaking with a Loanity credit specialist before committing to an interest-only loan structure.