What is an interest only home loan in Australia?

An interest-only (IO) home loan is a mortgage where the borrower repays only the interest charged on the loan balance for a set period — typically 1 to 10 years — without repaying any of the principal. During this period, the loan balance remains unchanged. After the IO period ends, the loan converts to principal-and-interest (P&I) repayments for the remainder of the loan term. IO loans are offered by most major Australian banks and lenders to both investors and owner-occupiers, though lending criteria for IO can be stricter than for P&I loans.

What are interest only home loan rates in 2026?

Interest-only home loan rates in Australia in 2026 vary by lender, loan type (investor vs owner-occupier), and loan-to-value ratio (LVR). IO rates are typically 0.10–0.40% higher than equivalent P&I rates from the same lender, reflecting the additional credit risk associated with IO lending. Variable IO rates for investors are generally in the 6.0–7.5% p.a. range as of early 2026, though rates change frequently. The best way to find a current IO rate is to compare lenders directly. LoanGorilla searches across 100+ lenders in real time with no impact on your credit score.

How much lower are IO repayments than P&I?

IO repayments are typically 25–35% lower than P&I repayments for the same loan amount and interest rate. On a $750,000 loan at 6.29% p.a., the monthly IO repayment is approximately $3,931 compared with $4,641 under full P&I — a saving of $710 per month, or about 15% in this case. The percentage difference depends on the loan term and interest rate; shorter remaining P&I terms after IO expiry make the difference more pronounced. Use the calculator above to model the exact figures for your loan amount and term.

What happens when the interest only period ends?

When the IO period ends, the loan automatically converts to principal-and-interest repayments. Because no principal was repaid during the IO period, the full original loan balance is now outstanding — but it must be repaid over the remaining loan term, which is shorter. This produces a repayment jump. On a 30-year loan with a 5-year IO period, P&I repayments are calculated over the remaining 25 years on the full original balance. The jump can be $500–$1,500 per month on a typical Australian mortgage. Borrowers who have not modelled this number in advance can face significant cash flow pressure.

Can owner-occupiers get interest only home loans?

Yes. Owner-occupiers can access interest-only home loans in Australia, though lenders apply stricter serviceability assessments to IO applications than to equivalent P&I applications. APRA has historically applied macro-prudential measures to limit IO lending, and lenders typically require owner-occupier IO borrowers to demonstrate a clear purpose for the IO arrangement (such as cash flow management during parental leave or a construction period). IO loans are more commonly used by investors, and owner-occupier IO rates may be slightly higher or come with more restrictive conditions.

Is interest only worth it for investors?

Whether IO is worth it for investors depends on the interaction between the after-tax cost of the IO premium, the cash flow benefit during the IO period, and the investor's strategy. The IO premium is a real cost. However, for investment properties, the interest paid on the loan is generally deductible against rental income, which reduces the effective after-tax cost. IO also preserves cash flow for reinvestment, renovations, or building cash reserves. The answer depends on an investor's marginal tax rate, rental yield, cash flow position, and investment horizon. This calculator shows the gross IO premium; tax implications should be assessed with a qualified accountant or financial adviser.

What is the maximum interest only period in Australia?

For investment loans, IO periods of up to 10 years are commonly available from Australian lenders. For owner-occupier loans, the maximum IO period is typically 5 years, though some lenders offer up to 10 years in certain circumstances. These limits reflect APRA's responsible lending guidance and individual lender credit policies. After the maximum IO period, the loan must convert to P&I for the remainder of the term.

Can I extend my interest only period?

It is sometimes possible to extend an IO period, but it is not guaranteed and typically requires a formal reassessment of your loan. Your lender will apply current serviceability criteria, which may have changed since you originally took out the loan. Rates or loan conditions may also change on extension. Some borrowers assume extension is automatic or straightforward — it is neither. If you are approaching the end of an IO period and considering extension, speak to your lender or a mortgage broker well in advance (at least 3–6 months). The P&I repayment after IO expiry should always be modelled as the fallback scenario, not the extension.

Does IO affect my borrowing power?

Yes. When assessing an IO loan application, lenders calculate your serviceability based on the P&I repayment that will apply after the IO period ends, not the lower IO repayment. This is a regulatory requirement under APRA's guidelines. Because the P&I repayment on an IO loan is higher than the P&I repayment on a standard P&I loan of the same term (due to the compressed remaining term), IO applications can actually reduce borrowing capacity compared with applying for a full P&I loan from day one. Lenders also apply an interest rate buffer (typically 3% above the current rate) to both scenarios.

How does LoanGorilla compare interest only home loans?

LoanGorilla compares interest-only home loans from 100+ Australian lenders on a single platform. Enter your loan amount, LVR, whether you're an investor or owner-occupier, and your preferred IO period — and LoanGorilla returns a comparison of IO rates, fees, and features from lenders including major banks, non-major banks, and specialist lenders. The comparison has no impact on your credit score.

Lower Repayments Now, Higher Cost Later. See Exactly How Much Later.

Interest-only home loans offer lower repayments during the IO period — but the loan balance doesn't reduce, and when IO ends the switch to P&I can be a significant jump. See your IO repayment, the P&I cliff, and the true long-term cost of choosing IO.

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IO vs P&I Side-by-Side

Who this calculator is for

Property investors using IO to maximise cash flow and tax deductibility during the investment phase.
Owner-occupiers considering IO to manage short-term cash flow (parental leave, renovation period).
Borrowers approaching the end of an IO period who want to model the P&I repayment cliff.
Anyone comparing the true cost of IO vs starting P&I from day one.

What it calculates

Your repayment during the interest-only period.
The P&I repayment after IO ends — and the dollar/percentage jump at the cliff.
Total interest under IO vs full P&I from day one.
The IO premium — extra interest paid by choosing IO.
Side-by-side comparison: IO then P&I vs full P&I.

Why it matters

IO repayments can be 25–35% lower than P&I during the IO period — which makes them look attractive. What's less visible is that the loan balance hasn't reduced at all during IO, so when P&I kicks in it's on the full original balance with a shorter remaining term. The repayment jump can be $500–$1,500/month on a typical Australian mortgage. This calculator makes that cliff visible before you sign.

Interest Only Home Loan Calculator

Loan purpose

Loan amount$750,000

Interest rate6.29%

Use a separate IO rate

Many lenders charge a 0.10–0.40% IO premium

Total loan term30 years

Interest-only period5 years

Repayment frequency

Interest-only vs P&I

During IO (5y)

$3,931

per mo

After IO (25y P&I)

$4,966

per mo

Repayment jump at IO expiry

+$1,035/mo (26.3%)

Total interest — IO structure$975,699

Total interest — full P&I from day one$919,467

IO premium+$56,232

Extra interest paid by choosing IO over the full loan life.

Loan balance at end of IO period

$750,000 (unchanged)

Investor loans: interest is generally deductible against rental income. After-tax cost may be lower — speak to a tax adviser.

Indicative only. Assumes constant rate, no extra repayments and no offset balance.

Compare Interest Only Home Loans from 100+ Lenders

Ready to see what interest-only rates are available for your situation? LoanGorilla searches across 100+ Australian lenders — including investor IO and owner-occupier IO options — in seconds, with no impact on your credit score.

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How this Interest Only Calculator works

The interest-only maths

During the interest-only period, your repayment is calculated on the loan balance alone — no principal is repaid. The formula is straightforward: monthly IO repayment = loan amount × (annual interest rate ÷ 12). On a $750,000 loan at 6.29% p.a., that's $750,000 × (0.0629 ÷ 12) = $3,931 per month. Every cent is interest. Your loan balance on the last day of the IO period is identical to the balance on day one.

What happens when IO ends

When the IO period expires, the remaining term is shorter — a 5-year IO on a 30-year loan leaves 25 years of P&I repayments. The full original balance is still outstanding. P&I must now retire that entire balance over the compressed remaining term, which is why the monthly repayment jumps. On the same $750,000 loan, a 5-year IO period pushes the P&I repayment to roughly $4,934/month — about $1,003/month higher than the IO repayment.

Why total interest is higher under IO

Because the loan balance doesn't reduce during IO, the lender charges interest on the full original balance for longer. Under full P&I, the balance falls from month one, which reduces the interest component of every subsequent repayment. Under IO that process is deferred, and the compounding effect builds into a significant premium over the life of the loan. The IO premium on a 5-year IO at $750,000 is roughly $84,000 in additional interest compared with starting P&I from day one.

The investor tax angle

Interest-only loans are popular with property investors in part because the interest component of an investment loan repayment is generally deductible against rental income. Under IO, the entire repayment is interest — maximising the deductible portion. Under P&I, only the interest portion is deductible, and that portion shrinks over time. This calculator provides general information only — it is not financial or tax advice. Speak to a qualified tax adviser about your specific situation.

How to interpret your results

The repayment jump is real and often underestimated — the P&I repayment shown after the IO period is the number your budget needs to absorb at IO expiry. If that number doesn't fit your projected income, IO is a risk, not a strategy.
The IO premium is the true cost of deferring principal — seeing it as a concrete dollar figure ($36,440 for a 2-year IO, $187,440 for a 10-year IO on a $750,000 loan) makes the trade-off comparable rather than abstract.
IO doesn't build equity — during the IO period your loan balance stays exactly the same. Property values may rise, but none of your repayments contribute to equity. You're paying for the use of the lender's money, not reducing your debt.
Investor tax deductibility changes the calculus — for investment properties, the interest paid during IO may be fully deductible against rental income, reducing the after-tax cost of the IO premium. Owner-occupiers don't get this benefit.
The shorter remaining P&I term means higher repayments — a 5-year IO on a 30-year loan compresses all principal repayment into 25 years. The same balance must be retired in less time, which raises the required repayment.

How to navigate the IO to P&I switch

Model the P&I repayment before you commit to IO. The P&I figure needs to fit your budget at IO expiry, not just today. Stress-test that number against your projected income in year 5 or 6.
If you're an investor, check the IO rate premium. Some lenders charge 0.10–0.30% more for IO. That premium compounds over the IO period on top of the structural IO premium. Use the separate-rate toggle in the calculator above to model both scenarios.
Don't rely on refinancing your way out. Rolling into a new IO period assumes favourable rates, ongoing serviceability and a willing lender. Model the P&I repayment as a fallback now, not as an emergency exercise in year four.
Use the IO period to build other financial buffers. Redirecting the repayment saving (often $500–$1,000/month) into an offset account reduces the balance on which interest is calculated — making IO work harder rather than simply spending the saving.
Consider a shorter IO period. The IO premium grows non-linearly. A 2-year IO on a $750,000 loan at 6.29% costs about $36,440 extra. A 10-year IO costs over $187,000.
Check whether extra repayments are allowed during IO. Some IO products permit voluntary principal reduction. If yours does, you can shave the P&I cliff and reduce total interest. Read the PDS or ask your broker.

Example Interest Only Calculations in Australia

The table below illustrates the IO premium across four scenarios on the same loan, varying only the IO period length.

IO Period	IO Monthly	P&I (after IO)	Total Interest — IO	Total Interest — Full P&I	IO Premium
0 years (full P&I from day one)	N/A	$4,641/mth	$920,760	$920,760	$0
2-year IO	$3,931/mth	$4,754/mth	$957,200	$920,760	+$36,440
5-year IO	$3,931/mth	$4,934/mth	$1,004,800	$920,760	+$84,040
10-year IO	$3,931/mth	$5,436/mth	$1,108,200	$920,760	+$187,440

Assumptions

$750,000 loan | 6.29% p.a. (same rate for IO and P&I) | 30-year total term | Monthly | Owner-occupier | No offset.
The IO monthly repayment is constant across all IO periods because it's calculated on the same balance at the same rate. The P&I repayment after IO ends rises as the remaining term shortens. Figures rounded.

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Calculator assumptions

Results are estimates based on standard amortisation principles and the inputs you provide. The IO repayment is calculated as: loan amount × (annual interest rate ÷ 12), with no principal reduction during the IO period. The P&I repayment after the IO period ends is calculated using standard amortisation on the full original loan balance over the remaining loan term (total term minus IO period). Unless you activate the separate-rate toggle, the same interest rate is applied to both periods. Total interest calculations assume repayments are made on schedule, the interest rate remains constant for the life of the loan, and no additional repayments or offset balances are applied. Real-world outcomes will differ if rates change, extra repayments are made, an offset is used, or the loan is refinanced. Tax deductibility of interest is referenced as general information only — individual tax outcomes depend on personal circumstances. All figures in AUD. LoanGorilla compares home loans from 100+ Australian lenders. Reviewed by the LoanGorilla editorial team — last updated May 2026.