What is interest-only on a mortgage?

With interest-only repayments you pay only the interest for a period, so the loan balance does not reduce. Payments are lower now, but you pay more interest overall and face a jump when you switch to principal and interest.

Is interest-only cheaper?

The payment is lower in the short term, but because the principal is not reducing, you pay more interest over the life of the loan. It can suit investors or a tight period, but it is not cheaper overall.

What happens when interest-only ends?

The loan reverts to principal and interest over the remaining term, so the repayment jumps, often sharply, because the full balance must now be repaid over fewer years.

Interest-Only vs Principal Calculator

This calculator compares interest-only mortgage repayments against principal-and-interest, showing the lower payment now versus the cost of not reducing the loan. You enter your loan, rate and term, and it shows both repayments, the interest paid under each, and the payment jump when an interest-only period ends, helping New Zealand borrowers understand the real trade-off of interest-only before choosing it.

Loan amount

Interest rate

Total term (years)

Interest-only period (years)

monthly payment jump when interest-only ends

Interest-only payment$0

Principal and interest payment$0

Extra interest over the loan$0

Interest-only keeps the balance unchanged, so after the interest-only period the full loan is repaid over the remaining years, which lifts the payment. Paying interest-only means more total interest. Estimate only, on a table loan, not financial advice.

How it works

The interest-only payment is simply the loan times the rate, divided into monthly amounts, since none of the principal is repaid. The principal-and-interest payment is the standard repayment over the full term. After the interest-only period, the balance is unchanged and must be repaid over the remaining years, so the calculator works out that higher payment and the jump. It also estimates the extra interest from not reducing the loan during the interest-only period.

Worked example

On a $600,000 loan at 6.5%, interest-only is about $3,250 a month. Standard principal and interest over 30 years is about $3,792. After a 5-year interest-only period, repaying over the remaining 25 years lifts the payment to around $4,051, a jump of roughly $800 a month from the interest-only figure, plus more total interest paid.

Related calculators

Interest Only Mortgage Calculator: interest-only loans.
Mortgage Repayment Calculator: standard repayments.
Mortgage Stress Test Calculator: test higher rates.
Mortgage Repayment Frequency Calculator: pay faster.

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