Start
Principal and interest
Scheduled repayments cover interest and reduce the balance over the loan term.
Repayment type
Principal and interest vs interest-only repayments
Repayment type changes how the loan balance moves. It can also change total interest, future repayments and lender assessment.
- Balance reduction
- Interest-only period
- Later repayment risk
What repayment structure are you comparing?
Choose the structure that matches your question.
Next check: P&I repayments
Principal and interest
Principal and interest repayments cover interest and gradually reduce the loan balance over the loan term.
May suitBorrowers who want the balance to reduce through regular repayments.
WatchRepayments may be higher than interest-only during the same period.
Check first
- Repayment comfort
- Loan term
- Rate movement buffer
- Extra repayment plans
Useful tools
CalculatorRepayment calculatorA broker can check repayment comfort and whether the loan term and structure fit lender assessment.
Repayment timeline
The lower payment period is not the whole loan story.
Compare repayment structure by watching the balance, the end date and the repayment after any interest-only period.
Start
Interest-only period
Scheduled repayments cover interest only, so the principal does not reduce unless extra repayments are made.
During
Balance comparison
Track whether total debt is falling, staying flat or increasing once fees and extra payments are considered.
Later
Repayment reset
When interest-only ends, repayments may rise because principal is repaid over the remaining term.
Review
Purpose and advice
Investment and tax questions should be reviewed with the right adviser before relying on the structure.
What to check before choosing repayment type
Interest-only decisions need extra care because lower repayments can hide later pressure.
Balance movement
Check whether the loan balance reduces during the period you are comparing.
Repayment after interest-only
Three to six months before the end date, ask the lender for the actual principal-and-interest repayment, remaining term, rate basis and repayment frequency.
Total interest
A lower payment today may mean more interest over the life of the loan.
Purpose and advice
Investment, ownership and tax questions should be checked with the right adviser.
Repayment structure
A lower initial repayment can create a later repayment problem.
Compare repayment type across loan balance, total interest, lender assessment and the repayment due after any interest-only period.
You are weighing up
- Principal and interest repayments that reduce the balance over time.
- Interest-only repayments for an investment, cash-flow or short-term planning reason.
- Whether the later repayment still works after the interest-only period.
Prepare before review
- Interest-only end date, remaining term and expected repayment after rollover.
- Total interest comparison and whether extra repayments are planned.
- Investment purpose, adviser questions and a clear exit or review plan.
Do not assume
- Interest-only is cheaper over the life of the loan.
- Tax treatment makes a structure suitable without adviser input.
- Every borrower, purpose or property will be accepted for interest-only lending.
Check before you rely on it
Be careful with interest-only comparisons
Interest-only expiry is different from fixed-rate expiry: the repayment type changes from interest only to principal and interest, while a fixed-rate expiry changes the rate arrangement. Both can happen together. Interest-only can reduce repayments for a period, but it can also increase total interest and create higher repayments later.
- The loan balance does not reduce during interest-only unless extra repayments are made.
- Illustration only: a $600,000 balance at 6.0% costs about $3,000 a month on interest only. After five years, repaying that balance over the remaining 25 years at the same rate is about $3,866 a month. Your lender's rate, balance, term and fees will differ.
- Confirm the lender's end date, post-expiry principal-and-interest repayment, remaining term and rate three to six months ahead.
- A broker should review lender assessment and product availability.
- Speak with a tax adviser where investment or tax deductibility matters.
Useful tools for repayment structure
Test the repayment before and after structure changes.
Common questions
Principal and interest vs interest-only questions
Why are interest-only repayments lower at first?
During the interest-only period, repayments cover interest only. They do not reduce the principal unless extra repayments are made.
What happens when interest-only ends?
The loan usually reverts to principal and interest repayments over the remaining term, so repayments may increase. Confirm the end date and post-expiry repayment with the lender three to six months ahead; a calculator is a planning estimate, not lender confirmation.
What should I check before my interest-only period ends?
Check the end date, current balance, expected principal-and-interest repayment, remaining term, rate and fees. Review household cash flow and, for an investment property, take tax questions to a qualified tax adviser. Do not assume an extension or refinance will be available.
Is interest-only mainly for investors?
It is often considered in investment contexts, but suitability and availability depend on the borrower, purpose, lender policy and advice boundaries.
Can Emoney give tax advice about interest-only loans?
No. Emoney can help with the lending review. Speak with a tax adviser about tax treatment, ownership structure and deductibility.
Broker review
Check the repayment structure before relying on it
A broker can compare repayments, lender policy, product availability and what changes after the interest-only period.