Interest Only Home Loan Calculator: How to Calculate IO Repayments (2026)

An interest only home loan calculator lets you see at a glance just what you'll be shelling out each month during the IO phase - and also what happens to your repayments when your loan switches back to principal and interest repayments. For property investors, this is one of the most important numbers to get your head around - and to run the numbers before you commit to a loan.

A lot of Aussie investors choose IO loans for their investment properties. And the reason is simple: since you're not paying down the debt during the interest-only period, your monthly costs are a fair bit lower, which means you've got more cash left over in your pocket to spend on other investments, doing up the property, or whatever else you need to do to keep your portfolio running smoothly. But to be honest, a lot of people underestimate just how much their repayments can change when the IO period comes to an end - without running the numbers through a home loan repayment calculator that is.

In this guide we'll go through how an interest only home loan calculator works in a bit more detail, compare the IO option against principal and interest home loan repayments with some real examples, and give you a walk through of the PropBoss Loan Repayment Calculator so you can play around with different scenarios.

How Interest Is Calculated on an IO Home Loan

First things first: understanding how interest is calculated on your home loan is a big part of making sense of any repayment calculator. With an interest only loan, you're just paying the interest charged on the loan balance each month - and the principal stays right where it is.

Here's the basic maths:

Your monthly IO repayment is basically just the loan amount x annual interest rate / 12

Take this example: on a $600,000 investment property loan at 6.25% per annum:

• Annual interest = $600,000 x 0.0625 = $37,500
• Monthly interest only repayment: $37,500 ÷ 12 = $ 3,125

But with principal and interest repayments on the same loan over 30 years, your monthly repayment would be approximately $ 3,693 . That's a difference of $568 per month - or $6,816 per year - that you get to keep in your pocket for the duration of the interest only period.

Most lenders calculate interest daily, based on the closing loan balance, then charge it monthly. So if you make a few extra repayments in the month or have some cash in an offset account your actual interest charges can be lower than the base calculation suggests.

Using the Interest Only Home Loan Calculator

Most Australian lenders have online calculators that you'll need to fill in with things like loan amount, interest rate (specifically for interest-only loans), total loan term, interest-only period, and how often you make repayments. The PropBoss Loan Repayment Calculator allows you to model both interest only and principal and interest scenarios side by side. Here's what you need to do to get some accurate results:

Step 1: Enter your loan amount. This is the total amount youre borrowing - not the property's value. If youre buying a $750,000 property with a 20% deposit, your loan amount is $600,000.

Step 2: Set the interest rate. Use the actual rate your lender is offering, not the comparison rate. We'll explain why comparison rates are important a bit later.

Step 3: Choose your loan term. Most investment property loans stretch on for 25 or 30 years. Keep an eye on how the term affects your P&I repayments but don't worry too much about your IO repayments yet.

Step 4: Set the interest only period. You'll see 1 to 5 years is pretty common for IO periods. Some lenders will let you have up to 10 years for investment properties, but this isn't as common as it used to be - since APRA tightened up serviceability rules.

Step 5: Compare the results. The calculator lays out your monthly repayments during the IO period, your monthly repayments once you switch to P&I, and the total interest paid over the life of the loan for each scenario. Just remember that most calculators assume the interest rate stays the same over the life of the loan, so any real-world interest rate changes will affect your actual repayments.

Worked Example: A Realistic $600,000 Investment Loan

Let's have a look at a real-life scenario. You've just bought an investment property in Brisbane for $750,000. After setting aside 20% as a deposit ($150,000) and paying stamp duty, your loan amount is $600,000.

	Interest Only (5 years)	Principal & Interest (30 years)
Monthly repayment (first 5 years)	$3,125	$3,693
Monthly repayment (years 6-30)	$3,888 (back to P&I on the remaining 25 years)	$3,693
Annual cash flow saved (first 5 years)	$6,816 per year
Total interest over 30 years	$779,400	$729,480
Extra interest cost of IO	$49,920

Going with interest only for the first 5 years saves you $34,080 in cash flow over that time. But of course, it ends up costing you more interest in the long run - roughly $49,920 extra in this example. Generally, interest-only home loans tend to cost more than principal and interest loans in the long run, because of the higher interest rates and because interest is charged on the full loan from day one during the IO period. What you choose to do with that saved cash is what really matters - we'll get into that below.

What Happens When Your Interest Only Period Finally Ends

This is where an interest only home loan calculator really comes into its own. When your IO period is up, your loan just automatically switches to P&I repayments, but they get worked out over the remaining loan term, not the original 30 years.

For example, in our $600,000 case, after 5 years on interest only, your loan balance is still $600,000 (no principal has been paid off yet). Now your P&I repayments are being calculated over 25 years, which means they'll be a lot higher than if you'd gone straight to P&I from the start.

The Monthly Repayments Shock: Real Numbers

Scenario	Monthly Repayment
IO period (years 1-5)	$3,125
P&I after IO ends (years 6-30, 25-year term)	$3,888
Increase when IO ends	+$763 per month
If you'd started on P&I (30-year term)	$3,693

That $763 monthly jump is what banks call "payment shock." It's the main reason you should always model the post-IO scenario in your calculator before committing to an interest only structure. Make sure your estimated rental income and personal budget can absorb the increase.

If the repayment jump is too steep, you have options: refinancing to a new IO period with another lender, extending the loan term (if your lender allows it), or making voluntary extra repayments during the IO period to reduce the balance before the switch.

Interest Only Home Loan Rates in Australia (2026)

Interest only home loan rates in Australia are typically 0.20% to 0.50% higher than the equivalent principal and interest rate from the same lender. This premium reflects the higher risk banks associate with IO loans — your loan balance doesn't decrease during the IO period.

As of early 2026, typical interest only rates for investment property loans range from:

• Variable rate IO loans: 6.09% to 6.89% (major bank range)
• Fixed rate IO loans (2-year fixed): 5.89% to 6.59%
• Fixed rate IO loans (3-year fixed): 5.99% to 6.69%

These variable and fixed rates change frequently and are subject to change without notice. Always confirm the current variable rate or fixed rate with your bank or broker before running calculations. The rates above are estimates only — the actual rate included in your home loan offer may vary based on your LVR, credit history, loan amounts, and whether you choose a home loan package with fee waivers and discounts.

Understanding the Comparison Rate

When comparing interest only loans between lenders, the comparison rate is more useful than the advertised rate. The comparison rate includes most fees and charges associated with the loan — application fees, ongoing fees, and discharge fees — rolled into a single percentage.

A lender might advertise a variable rate of 6.09% on their interest only home loan, but the comparison rate could be 6.45% once fees are factored in. Another lender with a headline rate of 6.19% might have a comparison rate of 6.29% because their fee structure is simpler.

By law, every Australian lender must display the comparison rate alongside the advertised rate. The comparison rate is calculated based on a $150,000 loan over 25 years — a different comparison rate will apply to different loan amounts, terms, and repayment frequencies.

Fixed Rate vs Variable Rate Interest Only Loans

Choosing between a fixed rate and variable rate on your interest only home loan affects both your repayments and your flexibility.

Variable Rate IO Loans - A Rate That Fluctuates with the Market let your interest rate move in sync with the market conditions. If the Reserve Bank cuts the cash rate your repayments will drop, and if rates rise you can expect them to increase. The good news is you can usually make extra repayments without incurring any penalties and then theres the features like offset accounts and redraw facilities.

Fixed Rate IO Loans - Locking in a Rate for the Long Haul lock your interest rate in for a set period, usually anywhere between 1 to 5 years. This gives you certainty on your repayment amount which can be a real game changer when it comes to forecasting your cash flow. However, you need to be aware that break costs will apply if you go and refinance or pay off the loan early during the fixed period, and most fixed rate loans tend to not offer offset account functionality.

For investment property owners a variable rate IO home loan is often the go to option due to the flexibility to use an offset account and make some extra repayments on the side. However, fixed rate home loans come into play when you want some certainty over your repayments during a renovation or if fixed rates are significantly lower than variable rates.

Fees and Charges That Can Really Add Up For IO Home Loans

When you're doing some research and comparing home loan products, dont just focus on the interest rate - you also need to take a close look at the fees and charges that apply to your home loan. The truth is, they can vary massively from one bank to another and even between different home loan packages. Some of the common fees to look out for are:

• Application fees which can range from $0 to a whopping $600 depending on the bank and loan package you choose
• Ongoing fees which can cost anywhere from $0 to $395 a year - some variable rate home loans will even waive these fees if you sign up to a package
• Discharge fees which can be a pretty penny, $150 to $400, whenever you close or refinance the home loan
• Break costs which can be in the thousands if you exit a fixed rate home loan early
• Valuation fees - some banks will slap you with a fee for the security valuation, others will include it in the cost

Many home loan products will offer you some fee waivers and discounts if you sign up for a package - for example, they might waive the annual fees and charges if you also have a credit card or transaction account with the same bank. You need to read the fine print to understand which fees and charges are included in your variable rate or fixed rate home loan, including government charges like stamp duty on the purchase. All this adds up to the overall comparison rate and can impact your choice of home loan product.

At the end of the day all fees and charges are subject to change at the bank's discretion and will be included in your home loan offer documentation before you apply for credit approval. When banks are assessing your application for a home loan, they will look at the total loan amount, your LVR and your ability to meet the terms of the variable or fixed rate home loan over the full loan term.

LVR and Lenders Mortgage Insurance - A Couple of Key Things To Consider

Your loan-to-value ratio (LVR) plays a big role in determining the interest rate you'll qualify for and whether or not you need to take out lenders mortgage insurance (LMI). Most banks tend to offer their best variable and fixed rate home loans to borrowers with an LVR of 80% or less - meaning you've got at least a 20% deposit.

If you've got a home loan with a loan to value ratio (LVR) of more than 80%, chances are you'll need Lenders Mortgage Insurance (LMI). This insurance can set you back up to $8,000 to $35,000, depending on the size of your loan and how much you're borrowing against your property. For example, a $600,000 loan at 90% LVR is going to cost you around $12,000 to $15,000 in LMI fees.

LMI is usually rolled into your home loan and you'll end up with a bigger loan balance. Because of this, your repayments will be a bit higher. To get a handle on the total cost of your loan - with and without LMI - it's a good idea to compare the two scenarios using our home loan calculator. Just keep in mind that there may be some conditions and criteria that the bank will use to decide whether you qualify for LMI.

Owner Occupier vs Investor Interest Rates

When it comes to home loan interest rates, banks tend to charge more for investment properties than they do for loans used by people who actually live in the properties. The difference can be as little as 0.20% or as much as 0.60% depending on the lender and whether you've got a variable rate or a fixed rate loan.

For example, if the bank is offering a 5.89% variable rate for an owner occupier home loan, they might charge something like 6.19% to 6.49% for an investment property. This applies to both interest only (IO) and principal and interest (P&I) loans.

The reason for this higher rate for investment properties is because they're statistically more likely to default. When you apply for an investment home loan, the bank will take a good hard look at your existing home loan commitments, how much rental income you expect, and your overall financial situation.

Why Most Australians With Investment Properties Choose Interest Only Home Loans

Interest only loans have a bit of appeal for property investors as they can help keep your non-interest costs low, freeing up cash to invest elsewhere. At the moment, around 60-65% of new investment property loans in Australia are interest only, according to APRA. If you're looking at getting an interest only loan for your investment property, ASIC's Moneysmart website has a useful interest only mortgage calculator that shows just how much of a difference it can make.

There are a few reasons why investors like to go for interest only loans, and we've broken them down into three main areas.

The Tax Benefits of Interest Only Repayments

As an investment property owner, you might be aware that the interest you pay on your home loan is tax deductible against your rental income. But did you know that interest only repayments are 100% interest - no principal component is paid off at all. That means your entire monthly payment is fully deductible during the IO period.

Let's use our example from before - a $600,000 loan at 6.25%. That works out to around $37,500 per year in tax deductions. At a 37% marginal tax rate plus the 2% Medicare levy, you're looking at a tax benefit of around $14,625 per year.

With P&I repayments, it's a different story. Since you're paying down the principal each month, you're only able to claim the interest portion of your repayments. And that decreases over time as your principal balance gets smaller. So in the first year of a 30 year P&I loan, around 85% of your repayments are interest. By year 15, it's dropped to around 50%.

The ATO allows you to claim the interest deduction regardless of whether you're on an Interest Only loan or a Principal & Interest one, but the Interest Only structure often ends up maximising the tax deduction in the early years when your tax rate is at its highest.

The Cash Flow Advantage

Lower monthly repayments mean a better cash flow for investors. When you've got multiple properties the difference between IO and P&I across a whole portfolio can be pretty substantial.

Consider an investor with three properties, each with a half-million-dollar loan at 6.25 percent interest:

	IO Monthly	P&I Monthly	Difference
Property 1	$2604	$3079	$475
Property 2	$2604	$3079	$475
Property 3	$2604	$3079	$475
Portfolio total	$7821	$9237	$1415/month

That $1415 per month ($17,100 per year) in extra cash could be used to save up for a deposit on a fourth property, to cover any unexpected maintenance costs, or to just have a bit of a buffer in case you've got a vacancy period.

Borrowing Power Considerations

When you apply for a new loan, the banks are going to look at your serviceability based on all the repayment commitments you've already got. Now, here's the interesting bit: most lenders will assess IO loans on the P&I repayment rate - not the current IO repayment. Which means your borrowing power is basically the same whichever type of loan your existing loans are.

However, the actual cash flow difference still matters for your personal budget. It's a good idea to run an Interest Only home loan calculator before each new purchase just so you can see if you can really service an additional loan and still have enough cash flow to keep up with everything else in your portfolio.

When to Switch from Interest Only to Principal and Interest

People use interest-only home loans for loads of reasons including payment shock, equity stagnation, and variable rate fluctuations that can send your repayments soaring if market interest rates go up. The decision to switch from IO to P&I isn't just about when your IO period has come to an end - it's a strategic choice you make. Here are the situations where switching makes sense.

Your portfolio's established. Once you've got the portfolio you want and you're no longer saving for the next deposit, switching to P&I helps you build some equity and save on your total interest costs.

Interest rates are low. If variable rates drop right down low, switching to P&I might not make a huge difference. So lock in a low P&I repayment rate to supercharge your debt reduction.

You're approaching retirement. Most financial planners reckon you should have your investment loans paid off or down to next to nothing before you retire. If you're within 15 to 20 years of retiring, switching to P&I ensures your loan balances go down.

Your rental income has increased. If your rental yield has gone up enough to cover P&I repayments with a neutral or positive cash flow, you're building wealth without breaking the bank.

If you are thinking about refinancing your investment property loan, try using the calculator to compare how your current IO terms stack up against new P&I offers from other lenders. The savings on a lower interest rate on P&I might just make up for the larger repayment amount.

How to Pay Off Your Home Loan Sooner on an IO Structure

You'd think that being on interest only repayments means you're stuck with a massive loan to pay off. But that's not the case. Here are three clever strategies that investors use to pay off their loan sooner while still being able to make interest only payments.

Slap On Some Extra Repayments

Variable rate IO loans usually allow you to make extra repayments without getting stung with a penalty. Any extra you pay goes straight to reducing the principal, which in turn cuts down on the amount of interest you're being charged moving forward.

For example, an extra $200 per month on a $600,000 loan adds up to $2,400 per year in principal reduction. Over a 5 year IO period, that's $12,000 less principal when you revert to P&I - and that's a significant reduction in repayments for the remaining loan term.

Just make sure to check your loan contract to see if there are any redraw fees. Some lenders charge you a fee just to access the extra repayments you've made in the past, while others offer redraw without any extra cost.

Use an Offset Account

An offset account is just another name for a transaction account that's linked to your home loan. The balance in this account is taken off your loan balance before the interest is calculated every day.

If you've got a $600,000 IO loan and $50,000 in a linked offset account, you only pay interest on $550,000. At 6.25% interest, that's a saving of $3,125 per year in interest - and the amazing thing is you didn't actually pay down the loan at all or affect your access to that $50,000.

For investment property owners, offset accounts offer a particular advantage. You get to save on interest without having to lock the funds away and commit them to loan repayments that you then have to formally redraw.

Consider Splitting Your Loan in Two

Some investors like to split their investment property loan into two parts - one IO and one P&I. This lets you get the cash flow benefits of IO on the larger portion while actively building equity on the smaller P&I portion.

For instance, you could structure a $600,000 loan as $400,000 IO and $200,000 P&I. Your blended monthly repayment would sit somewhere in between full IO and full P&I, and you'd be reducing the principal on $200,000 from day one.

Interest Only Mortgage Repayments: Frequently Asked Questions

How Much Are IO Home Loan Repayments on a $500,000 Loan Anyway?

At 6.25%, your monthly home loan repayments on a $500,000 IO loan would be $2,604. At 6.00%, they'd be $2,500. At 6.50%, they'd be $2,708. It's a simple calculation: loan amount multiplied by the annual rate, divided by 12. Just keep in mind these are just rough estimates based on the rate remaining constant - actual amounts may vary based on rate changes.

Is an IO Home Loan a Good Idea for an Investment Anyway?

For most Aussies with investment assets, yes IO home loans make sense. They keep your cash flow strong during the accumulation phase, keep the tax deductions high and let you move your capital around as you want. Of course, you do pay a bit more in total over the life of the home loan. Run some numbers with our home loan repayment calculator and see how the estimated repayments add up on an IO home loan versus a P&I one.

What's the Comparison Rate for IO Home Loans Going to Be?

The comparison rate varies depending on the bank and the home loan product. It'll be higher than the advertised rate because it includes all the extra fees and charges you'll be paying. As a rough estimate, you can add 0.15 to 0.40% to the advertised rate. And keep in mind its going to be different for different loan amounts and terms. Don't look at the headline rate when comparing home loans - always go with the comparison rate.

Can you Make Extra Repayments on an IO Home Loan?

Most banks let you make extra repayments on a variable rate IO home loan, as long as you've checked the fine print that came with your loan. Variable rate loans tend to be the most flexible, but fixed rate loans will often let you make extra repayments up to $10,000 to $30,000 a year - though you might get hit with penalty break costs if you go over that limit. Check your full loan terms and conditions to be sure.

How Long Can You Run with an IO Home Loan?

Most banks let you have an IO period of 1 to 5 years for investment home loans, but some will offer up to 10 years - though thats becoming less common. You can usually apply for a new IO period when the one you've got is up, but your gonna have to get the bank's approval and go through a bit of a financial check at that time. And remember, eligibility criteria applies and can change at any time.

Work Out Your Interest Only Repayments Today

The numbers in the examples above arent going to be much use to you, your situation's unique and all sorts of things can affect which loan structure is best for you, like the size of your loan, the interest rate, the type of property your investing in and the investment strategy you're using.

Use our PropBoss Loan Repayment Calculator to work out exactly what happens in your scenario - compare IO against P&I, test different interest rates and see what happens when the interest only period is over.

For help comparing lenders and structures, see our investment property mortgage broker guide.

Already got some investment assets? Create your free PropBoss account and you can track home loan repayments, rental income and cash flow across all your properties in one place.

Important: The information in this guide is general and doesnt take into account your personal circumstance or financial situation. Home loan interest rates, fees and charges are subject to change without notice - and they differ between banks, credit unions and home loan products. The estimated repayments and calculations shown in the guide are based on the assumptions stated and may not be the actual amounts you get - different loan amounts, terms and variable or fixed rate products will result in different comparison rates and estimated repayments.

Fees and charges are going to crop up on just about every home loan application - so be prepared for application fees, ongoing fees, government charges and discharge fees to be factored in. Check out each offer carefully to see if any fee waivers or discounts are on the table for you in a particular package. Its worth reading the fine print - even with credit approval all home loan products are subject to the lender's lending criteria, and there are eligibility criteria to boot which can change at any time. Aussies thinking of jumping into a new home loan or making any changes to an existing one should read up on the small print in any home loan offer they're considering.

If you're thinking of taking the plunge you might want to consider talking to a licensed finance pro - or someone with an Australian credit licence who can have a squiz at your individual financial situation, including your loan to value ratio, any existing home loans and what you might be able to borrow against. PropBoss aren't here to do your home loan at all - we cant provide credit or home loan products or even help you apply for credit - we just provide the tools to help Aussies get a handle on their investment portfolio.

Also read our investment loan repayment calculator.