A Moneybren tool

INTEREST-ONLY MORTGAGE CALCULATOR

Interest-only payments look cheap. This shows what the holiday really costs — the payment jump when it ends, and the extra interest over the life of the loan.

The loan

Loan amount $

Interest rate % pa

Interest-only period yrs

Banks typically allow up to 5 years for owner-occupiers, longer for investors.

Total loan term yrs

The interest-only period costs you an extra

Interest-only start

Standard P&I from day one

What you still owe

Year-by-year detail

Year	IO route — payment/mo	IO route — balance	Standard — payment/mo	Standard — balance

What interest-only really is. For the interest-only years you pay the bank’s interest and nothing else — you owe exactly as much at the end as the day you started. Then the full loan has to be repaid over what’s left of the term, so the payment jumps above what standard repayments would have been from day one. Assumes the rate stays constant and no fees; real loans refix along the way. Interest-only can still make sense — investors chasing deductibility or cash flow, or a genuine short-term squeeze — but it should be a decision, not a default.

How to use this calculator

Enter your loan, rate, how long you’d pay interest-only, and the total term. The calculator runs both paths — interest-only first vs standard principal-and-interest from day one — and shows the payment during the holiday, the jump when it ends, and the total extra interest the holiday costs.

Watch the chart: the gold line stays flat during the interest-only years while the green line falls from the start. That flat stretch is the whole story.

This is a tool only, and none of the information it produces is financial advice. Its accuracy is not guaranteed. Always check your own figures and get advice from your own financial professionals before making decisions.

A worked example

Take that $640,000 loan at 5.5%.

On a normal principal-and-interest mortgage, you’d pay around $3,634 a month. Switch to interest-only and the payment drops to about $2,933 – you’re only covering the interest, not chipping away at the debt.

Cheaper each month, sure. But here’s the catch the calculator makes obvious: after your interest-only period ends, you still owe the full $640,000. You’ve paid the bank tens of thousands and reduced your loan by exactly zero.

Compare both side by side above before you decide it’s the “affordable” option.

What most people get wrong about interest-only

Interest-only feels like a discount. It isn’t. You’re not saving money – you’re delaying paying down the debt, and over the full life of the loan you’ll pay more interest, because the balance never shrinks.

It has real uses. Property investors often use interest-only for cash flow and tax reasons, keeping their own money working elsewhere. That can make sense when it’s a deliberate strategy.

Where it goes wrong is owner-occupiers using interest-only just to afford a bigger house than they should. You get the keys, but you’re building no equity, and when the interest-only period ends your repayments jump – right when you’ve made no progress on the loan. If the only way you can afford a place is interest-only, that’s usually the market telling you it’s too expensive for you right now.

This calculator and page are general information only and not financial advice. Everyone’s circumstances will vary – always do your own research and consult your own financial professionals before making decisions.