How much do repayments go up after an interest-only period?

Enough to repay the whole amount borrowed over the years that are left. On $500,000 at 6.4% over 30 years with five years interest-only, about $2,668 a month becomes $3,346.04, some $678 more, as the full $500,000 is repaid over 25 years instead of 30.

Is the interest on an interest-only investment loan tax deductible?

In Australia, interest on a loan used to buy a rental property is generally deductible, the principal is not, and a loan used partly for private purposes is apportioned, as the ATO’s rental property guidance explains. An interest-only repayment is all interest, which is why Moneysmart notes an investor could claim higher deductions. General information, not tax advice for your situation.

Can you make extra repayments during an interest-only period?

Many loans allow it, and anything paid above the interest comes straight off the balance, so less is owed when the principal and interest repayments begin. Moneysmart suggests working up to the higher repayment before the switch if the loan lets you pay extra.

Business basics · AU

Interest-only loan

A loan whose repayments cover only the interest for a set period, so the balance does not fall.

An interest-only loan has repayments that cover only the interest for a set period, often five years, so nothing comes off the amount borrowed. When the period ends the loan becomes principal and interest, repaid over the years left, and the repayment rises. Because the balance stays high for longer, an interest-only loan costs more interest overall than repaying from the start.

Moneysmart lists what draws people to one — lower repayments to save or pay down dearer debts first, and for an investor, higher tax deductions — and what it costs: the rate can be higher than on a principal and interest loan, the balance does not fall, and repayments rise further if rates go up. With interest worked out daily, an interest-only repayment follows the number of days in each month.

Worked example

$500,000 at 6.4% over 30 years, with interest worked out daily and the first five years interest-only, is about $2,668 a month to start — $2,454.79 in a 28-day month, $2,717.81 in a 31-day one — then $3,346.04 a month for the 25 years left. Principal and interest from the start is $3,128.64 a month, and the interest-only years add $37,587 of interest over the loan.

Common mistake

Budgeting on the interest-only repayment. The higher repayment arrives on a known date; working it out early, and paying a little extra beforehand if the loan allows, softens the step up.

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Grounded in Moneysmart (ASIC) — Interest-only home loans guidance. Figures last checked 12 November 2026. General information, not tax advice.

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