Your interest-only period is ending. What changes?
When an interest-only period ends, repayments usually begin covering principal as well as interest over the remaining loan term. Payments can rise even if the interest rate stays unchanged, because the debt must now be repaid. Get the end date, new rate, remaining term and first repayment from your lender. Compare that payment with your household budget early, and contact the lender if it will be difficult to manage.
By Ratey · General information for Australian borrowers.
Example: the rate stays the same but the payment rises
Assume an illustrative $500,000 balance at 6% with no offset, fees or extra payments. A simple monthly interest-only estimate is $2,500. If the original 30-year loan has used five years on interest only, repaying $500,000 over the remaining 25 years at the same rate requires about $3,222 per month.
The increase is about $722 per month despite an unchanged rate. This uses a monthly amortisation formula, so actual lender figures can differ with timing and calculation conventions. At 7% over those same 25 years, the estimate is about $3,534, showing the separate effect of a higher rate.
Two changes can arrive together
Separate the repayment-type change from any rate change. Moving to principal and interest adds debt repayment. A different rate can then increase or reduce the amount further. Ask for both details so you can see what drives the new payment.
Moneysmart explains that the principal generally does not reduce through interest-only payments and that payments rise when principal repayment begins. The time spent on interest only is part of the original loan term, so check the actual years remaining rather than assuming the loan starts afresh.
Get the transition details in writing
Ask the lender for the current balance, interest-only end date, principal-and-interest start date, applicable rate, remaining term and repayment frequency. Request the first new repayment amount and the account it will be taken from. A rate quote without the repayment date is not a complete cash-flow plan.
If you have an offset or have made extra repayments, ask how those affect the calculation and required payment. Do not subtract an offset balance from the contractual debt when estimating an amortising payment unless that matches the lender’s actual method.
| Detail | Why it matters |
|---|---|
| Remaining principal | Debt still to be repaid |
| Remaining term | Time available to repay it |
| New interest rate | Interest cost after the change |
| First payment date | When the budget must cover the increase |
| Payment frequency | How the amount fits your pay cycle |
Rehearse the new payment in your budget
Take the lender’s quoted new payment and subtract what you currently pay over the same period. That difference is the extra room your budget needs. Add annual expenses in monthly equivalents so the rehearsal does not look comfortable only because a major bill is absent this month.
If practical, set aside the difference before the change and observe what happens to your cash balance. This is a budgeting exercise, not a direction to make an extra loan repayment without checking the terms. A shortfall in the rehearsal is useful information to discuss while there is still time to consider options.
Compare changes using the same remaining term
Request a rate review and compare available principal-and-interest options. If refinancing is considered, include switching costs and preserve the remaining term in the first comparison. Show any term extension separately: a smaller payment can result from spreading debt over more years.
If you ask about another interest-only period, request the conditions and what repayments would look like afterwards. Do not build the household budget around an extension before it is agreed. The immediate task is understanding the confirmed transition and available options.
Raise affordability concerns before the due date
If the new payment looks unaffordable, contact the lender’s hardship team and explain the change and your current budget. Ask what assistance is available and how any arrangement affects future payments. Keep a record of the discussion and any agreed dates.
Moneysmart’s mortgage difficulty guidance explains support options, including financial counselling. Getting help early is more useful than assuming a refinance or another interest-only period will be approved. Continue to follow your existing agreement unless a different arrangement is confirmed.
Your next-step checklist
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Common questions
Will the loan term restart when interest only ends?
Do not assume it restarts. Use the remaining term confirmed by the lender. An extension is a separate change to discuss and assess.
Can a lower interest rate prevent a repayment increase?
It may reduce the increase, but principal repayment also begins. Calculate the resulting payment rather than comparing rates alone.
Does property equity guarantee I can refinance?
No. Available security and the ability to meet repayments are different parts of a lending assessment. A new lender must assess the application.
Sources and assumptions
These primary sources support the explanations above. Examples use invented figures to show the calculation or decision; they are not available loan offers. Check your lender’s terms for your circumstances.
Calculations are estimates and do not establish borrowing eligibility. Read the calculation methodology.
Prepare your lender discussion
Collect the loan details and request a review before the payment changes.