Calculator · Central Lending Solutions
Interest-Only Mortgage Calculator
An interest-only repayment is significantly lower than principal-and-interest because you are only paying the interest, not paying the loan down. On a $500,000 Perth investment loan at 6.45%, interest-only is about $2,688 a month versus $3,141 on principal-and-interest, a cashflow saving of roughly $453 a month for the first five years. Enter your numbers below.
Why this matters
What this calculator is actually telling you.
Interest-only (IO) means your repayment covers only the interest charged for the period, with no reduction in the loan balance. The balance stays flat for the IO period, then the loan reverts to principal-and-interest (P+I) on whatever is left. Under APRA rules the IO period on residential investment lending is capped at five years, after which the remaining balance must amortise over the remaining loan term, usually 25 years.
The reason most Perth investors use IO is cashflow and tax. On that same $500,000 loan at 6.45%, the IO repayment is about $2,688 a month against $3,141 on P+I, which is roughly $5,400 a year of extra cashflow to feed rates, insurance, strata, management fees or simply hold the property through a tight patch. Because the full repayment is deductible interest on an investment property, IO is often paired with negative gearing strategies on stock-standard investor suburbs like Bassendean, Bayswater and Maylands.
The catch is the rollover cliff. At the end of the IO period the same balance has to amortise over a shorter window, so the new P+I repayment is mechanically higher than it would have been if you had been paying P+I from day one. On a 30-year loan that goes 5 years IO then 25 years P+I, the post-revert repayment on $500,000 at 6.45% jumps to roughly $3,366 a month, around 25% higher than the IO payment and about 7% higher than the original P+I figure. In real Perth files we see jumps of 30 to 50% when the rate has also moved up or the IO period was longer.
Owner-occupier IO is a different story. Regulator pressure means lenders rarely approve IO on owner-occupied lending unless there is a clear, documented reason such as a short-term hardship arrangement or a bridging structure. If you are looking at IO with no exit strategy, no plan to sell, refinance, switch to P+I or use the cashflow productively, it is one of the easier ways to find yourself in trouble at year five. This page is general information only and not personal advice. For a structure built around your numbers, call CLS on 0489 082 257.
Questions
Frequently asked.
How does an interest-only home loan work?
On an interest-only loan you only pay the interest charged each month, so the loan balance does not reduce during the interest-only period. APRA caps interest-only on residential investment lending at five years, after which the loan reverts to principal-and-interest over the remaining term. Your cashflow is lower upfront, but you pay more total interest because you carry the full balance for longer.
Should I use interest-only on my Perth investment property?
Interest-only suits Perth investors who want to maximise deductible interest, preserve cashflow for other investments, or hold a negatively geared property through the early years. It is common on stock-standard investor suburbs like Bassendean, Bayswater and Maylands. It is not a free lunch. You pay more total interest over the life of the loan and you face a repayment jump at the end of the interest-only period. Whether it fits your strategy depends on your tax position, your other holdings and your exit plan, which is a personal advice conversation.
What is the difference between interest-only and principal-and-interest?
Principal-and-interest (P+I) repayments cover the interest for the period plus a slice of the loan balance, so the loan steadily reduces and is paid out by the end of the term. Interest-only (IO) repayments cover only the interest, so the balance does not move during the IO period. On a $500,000 loan at 6.45% the P+I repayment is about $3,141 a month and the IO repayment is about $2,688, a saving of around $453 a month while IO is in place.
What happens at the end of the interest-only period?
At the end of the interest-only period the loan reverts to principal-and-interest on the remaining balance over the remaining loan term. Because the principal has to amortise over a shorter window, the new repayment is mechanically higher than the original P+I figure. On a 30-year loan structured as 5 years interest-only then 25 years P+I, a $500,000 balance at 6.45% jumps from about $2,688 a month to roughly $3,366 a month at rollover. If rates have moved up by then, the jump is larger. Real Perth files often see a 30 to 50% increase.
Can I get interest-only on an owner-occupier home loan in Perth?
It is possible but harder. APRA and the lenders have been steering owner-occupier borrowers away from interest-only since the 2017 reforms, so most owner-occupier IO approvals require a clear, documented reason such as a short-term hardship arrangement, a bridging loan or a specific cashflow event. Most CLS owner-occupier clients are better served by principal-and-interest with an offset account, which gives flexibility without the regulator scrutiny. A broker can tell you whether your situation has a realistic path.
Where do I go for help if I want this applied to my own loan?
Call CLS on 0489 082 257 or book a free chat. Harj Dhillon and the team will run the interest-only versus P+I numbers against your actual position across more than 30 lenders, including the rollover scenario, the tax angle and the exit strategy. Central Lending Solutions is MFAA accredited under Australian Credit Licence 497 950 with over $1.2 billion settled since 2015.
Want this applied to your real situation?
Talk to Harj.
No fee for most clients. A real conversation about your numbers and your options across 30+ lenders. Most clients hear back the same day.