What happens when your interest only period ends

Interest only repayments feel light because they are. You're renting the money, not paying it back.

The catch arrives at expiry. Your loan reverts to principal and interest – but compressed into the remaining term, not the original one. A 30 year loan with a 5 year IO period repays the full principal over 25 years, and the repayment jump is bigger than most people expect. On a $700,000 loan at 6%, you go from $3,500 a month to roughly $4,510. That's over $1,000 a month appearing in your budget on a set date you agreed to years earlier.

None of this makes IO wrong. It makes it a decision you should price properly before you sign, not after. Run your own numbers above – the calculator shows both repayments side by side and flags the jump in dollars.

Extra repayments – what they actually save you

Here's where the graph earns its keep. Put in even a modest extra amount and watch the curve dive under the original loan line.

The mechanics are simple: every extra dollar goes straight to principal, and every dollar of principal you retire stops charging you interest for the rest of the loan. That's why timing matters so much. A $100,000 lump sum in year 5 of a $700,000 loan at 6% saves around $277,000 in interest. The same lump sum in year 20 saves about $74,000. Same money, wildly different outcome – because the early dollars had 25 years of compounding interest left to kill.

Two caveats before you get excited. Fixed rate and interest only loans often cap extra repayments – some lenders allow as little as $10,000 a year before break costs apply. And for investors, paying down deductible debt isn't automatically the right move – that's a conversation for your accountant, not a calculator.

Interest only or principal and interest for an investment property?

There's no universal answer, which is exactly why you should distrust anyone who gives you one in a 30 second video.

Interest only maximises cashflow and keeps the loan balance – and therefore the deductible interest – at its peak. Principal and interest usually comes with a lower rate, builds equity from day one, and avoids the repayment cliff. The right structure depends on your income, your tax position, your other debt, and what you're actually trying to do with the portfolio. That's lender and accountant territory.

What the calculator can do is put real numbers on each path so those conversations start from facts, not vibes. While you're at it, run the property through our rental yield calculator and cashflow calculator to see the full holding cost picture, and check the stamp duty on your next purchase before it surprises you at settlement.

Frequently asked questions

How are repayments calculated?

Standard amortisation, with interest compounding at your chosen repayment frequency. The rate is held constant for the full term – real loans reprice, so treat results as a model, not a quote.

Why is my fortnightly repayment not exactly half my monthly one?

Because there are 26 fortnights in a year, not 24. This calculator computes true per-period repayments. Some lenders instead charge half your monthly amount fortnightly – which quietly gets you one extra monthly repayment in each year and pays the loan off faster.

Does the calculator include the higher rates lenders charge on interest only loans?

No – it applies one rate throughout. Most lenders price IO loans 20 to 40 basis points above P&I, so your real-world IO cost is likely a touch higher than shown.

Should I make extra repayments on an investment loan?

Sometimes yes, sometimes no. The interest saving is real, but so is the tax deductibility of investment debt, and many investors are better served directing spare cash elsewhere. Speak to your accountant or financial adviser before restructuring anything.

Can I rely on these numbers?

For understanding how a loan behaves, yes. For a lending decision, no – confirm actual repayments with your broker or lender. This is general information only and doesn't consider your circumstances.