During an interest-only period the balance does not fall. This shows the repayment while that lasts, what it becomes afterwards, and what the arrangement costs overall.
The number to plan around is the second one. When the interest-only period ends, the original principal has to be repaid over a shorter remaining term, and the repayment steps up sharply.
Shows the repayment during an interest-only period, the higher repayment once it ends, and the extra interest it costs over the loan.
Interest-only years
How long principal repayments are deferred. Australian lenders commonly offer up to five years on an investment loan, less on an owner-occupied one.
The first figure is what you pay while interest-only. It is lower, which is the appeal.
The second is what you pay afterwards, and it is higher than it would have been without the interest-only period — the same principal now has fewer years to be repaid over. A five-year interest-only period on a thirty-year loan means repaying the whole balance in twenty-five years.
The third is the extra interest across the loan. You paid interest for five years on a balance that never fell, and then repaid that balance over a shorter term.
Every figure below is computed by the same calculator on this page, from the inputs described. Nothing here is typed in by hand, so an example cannot disagree with the tool.
Compare the two repayments. The step up when the period ends is the risk in the arrangement, and it arrives on a known date.
During the interest-only period the repayment is exactly the interest on the full balance, so the balance is unchanged at the end of it.
The principal-and-interest repayment is then computed over the remaining term on the original balance, using the standard amortisation formula.
Total interest is the sum of both phases, compared against the same loan repaid principal-and-interest from the start.
The same rate throughout
In practice interest-only loans are often priced above principal-and-interest ones, which would make the arrangement more expensive than modelled here.
The period is not extended
Extending requires a new assessment. Lending standards tightened materially after 2017 and an extension cannot be assumed.
Tax treatment is not modelled
Interest-only is often chosen on investment property for tax reasons. Whether that is sensible depends on a tax position this calculator does not know; the negative gearing calculator is the closer tool.
It assumes the property is not sold
Some interest-only strategies rely on selling before principal repayments begin. That is a bet on price, and the calculator has no view on it.
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This calculator can be embedded on a business website, branded to match it, with a call to action that sends the enquiry to that business rather than collecting anything here.