Interest-Only vs Principal and Interest Calculator

Quick answer: Interest-only repayments are lower each month because you are only paying the interest, so the loan balance does not reduce and you build no equity from your repayments. On a $500,000 loan at 6.00% over 30 years, interest-only costs $2,500.00 a month against $2,997.75 a month for principal and interest, a $497.75 difference. Held for 5 years, principal and interest builds $34,728.22 of equity and costs $4,863.06 less in interest than interest-only over the same period. Enter your own numbers below.

This calculator compares interest-only and principal-and-interest mortgage repayments on the same loan, so you can see the trade-off in plain numbers rather than guessing at it. Enter your loan amount, the interest rate, the total loan term in years, and how many years you plan to compare, whether that is the length of an interest-only period an investor is considering, or simply a window you want to check before refixing. The calculator returns the monthly payment under each repayment type, then works out the total interest paid and the equity built, meaning principal repaid, under each option over the years you have chosen to compare. Interest-only always shows zero equity built from repayments, because the loan balance never falls during that period, while principal and interest steadily reduces the balance from the very first payment. It updates instantly as you type, with no need to press a button. This is useful for property investors weighing up an interest-only period against ongoing principal and interest, homeowners considering a temporary interest-only stretch during a tight patch, and anyone who simply wants to understand what a lower repayment now actually costs later in interest and lost equity. The figures assume a standard table loan at a constant rate for the period compared and are an indicative estimate only, not financial advice, so confirm your own numbers with your lender or a mortgage adviser.

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Updated July 2026  Current rates and legislation applied.

Verification & Methodology

Formula: standard reducing-balance (table loan) amortisation for principal and interest; interest-only payment is loan amount × interest rate ÷ 12, with the balance unchanged for the interest-only period.
Interest rate: the 6.00% default is an illustrative example only, not a fixed or government rate. New Zealand mortgage interest rates are set individually by each bank and change regularly, so replace it with your own quoted or advertised rate.
Interest-only availability: New Zealand banks set their own policy on maximum interest-only term and eligibility under their responsible lending obligations. This calculator does not model any specific bank's policy or the Reserve Bank's loan-to-value ratio settings.
Last verified: July 2026, formula cross-checked against standard financial amortisation mathematics.
Source data: this is a mathematical calculation, not a legislated figure. For lender responsible lending obligations, see the Commerce Commission on the CCCFA, and for New Zealand mortgage lending data, see the Reserve Bank of New Zealand statistics page.

What Is Interest-Only vs Principal and Interest?

Every table mortgage in New Zealand is repaid one of two ways. With principal and interest, the standard default for most home loans, each regular payment covers the interest charged since your last payment and repays a slice of the loan balance itself, so the debt steadily shrinks and your equity grows with every payment. With interest-only, your payment covers the interest alone, so the loan balance stays exactly where it started for as long as the interest-only period runs. The monthly payment is lower because you are not also repaying principal, but the trade-off is that you build no equity from your repayments during that time, and you generally pay more interest across the loan's life because the balance never shrinks to reduce future interest charges.

How This Calculator Works

The interest-only payment is simply the loan balance multiplied by the annual interest rate, divided by 12. The principal-and-interest payment uses the standard reducing-balance amortisation formula banks use for table loans, spreading the loan and its interest evenly over the full term. For the number of years you say you are comparing, the calculator then works out the loan balance remaining under principal and interest, which gives the equity built, meaning principal actually repaid, and it totals the interest paid under each option over that same period. Interest-only equity built is always zero, since the balance cannot fall without a principal payment.

The Equity Trade-Off

The core trade-off is this: interest-only frees up cash flow today, but every dollar of interest-only repayment is a dollar that builds nothing toward paying off the loan. Principal and interest costs more per payment, yet a portion of that extra cost is not really a cost at all, it is money moving from debt into your own equity. Over the same period, principal and interest also tends to cost slightly less in total interest than interest-only, because a shrinking balance accrues less interest as the term progresses, while an interest-only balance keeps accruing interest on the full, undiminished amount the whole time.

When Interest-Only Can Make Sense in NZ

Interest-only is most commonly used by residential property investors, where the lower payment frees up cash flow to service multiple properties, cover a renovation, or bridge a period before rental income catches up with holding costs. Some owner-occupiers use a short interest-only period to get through a temporary financial squeeze, such as between jobs, during parental leave, or while managing an unexpected expense. In both cases it is generally treated as a short-term tool rather than an ongoing strategy, precisely because it delays paying down the loan and does not build equity on its own.

Getting Interest-Only Approved in New Zealand

Most New Zealand banks offer interest-only lending, but it tends to be easier to arrange on investment property than on an owner-occupied home, and lenders set their own maximum interest-only term and eligibility rules under their responsible lending obligations. Because an interest-only loan does not reduce the debt, some banks assess serviceability more conservatively for it, and it can be restricted to lower loan-to-value lending. Policies and the length of interest-only periods on offer vary by bank and can change, so confirm the current position with your lender or a mortgage adviser rather than assuming a fixed rule applies everywhere.

Worked Example

Consider a $500,000 loan at 6.00% over a 30-year term. The interest-only payment is the balance times the rate divided by 12, which is $500,000 × 0.06 ÷ 12 = $2,500.00 a month. The principal-and-interest payment on the same loan, using the standard amortisation formula, comes to $2,997.75 a month, a difference of $497.75. Now compare the two over a 5-year period. Paying interest-only for 5 years costs $2,500.00 × 60 months = $150,000.00 in total, every dollar of which is interest, with $0 of equity built from repayments. Paying principal and interest for the same 5 years costs $2,997.75 × 60 months = $179,865.16 in total, of which $145,136.94 is interest and $34,728.22 has gone toward reducing the loan, which is the equity built. So over those 5 years, principal and interest costs $29,865.16 more in total cash paid, but $4,863.06 less in interest, and leaves the borrower $34,728.22 further ahead in equity than interest-only would.

Who This Calculator Is For

This calculator suits property investors deciding whether to request an interest-only period on a rental property, homeowners considering interest-only during a temporary cash-flow squeeze, and anyone who wants to see, in real dollars, what a lower repayment today actually costs in interest and lost equity over a chosen period. It compares repayment types on a single, unchanging loan rather than modelling what happens when an existing interest-only period ends and reverts to principal and interest, which is covered by our dedicated Interest-Only vs Principal Calculator.

What This Calculator Assumes

• A standard table loan at a single, constant interest rate held for the whole period you are comparing, not a series of different rates or a stepped structure.
• The interest rate you enter is illustrative unless you replace it with your own quoted or advertised rate; NZ mortgage rates are set by individual banks and change regularly.
• Interest-only equity built from repayments is always zero; any change in property value is not modelled here.
• It does not model bank-specific interest-only eligibility, maximum interest-only term, or loan-to-value ratio restrictions, which vary by lender.
• Results are indicative only, rounded for display, and not financial advice. Confirm your exact figures with your lender or a mortgage adviser.

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