Interest-Only to P&I: Modelling the Payment Jump
ADS Team
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August 19, 2026
about 1 month ago
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In short: When an interest-only period ends, the loan converts to principal and interest calculated over the remaining term - not a fresh 30 years. On a $600,000 loan with a five-year IO period on a 30-year term, the repayment rises from $3,250 to $4,051, a jump of $801 a month.
Key takeaways
- The remaining term shortens, which is what drives the size of the jump.
- A longer IO period produces a larger reversion shock.
- Extending IO requires passing serviceability on the post-reversion repayment.
- Making voluntary principal payments during IO reduces the shock.
The jump, by IO length
$600,000 at 6.5% on a 30-year term:
| IO period | IO repayment | P&I after | Jump |
|---|---|---|---|
| None | - | $3,792 | - |
| 3 years | $3,250 | $3,935 | +$685 |
| 5 years | $3,250 | $4,051 | +$801 |
| 10 years | $3,250 | $4,472 | +$1,222 |
Preparing for it
- Diarise the reversion date from day one - it should not be a surprise.
- Bank the difference. Put the future P&I amount aside during the IO period; you prove serviceability to yourself and build a buffer.
- Make voluntary principal payments if the loan allows - each dollar reduces both the balance and the eventual repayment.
- Start conversations early - eight weeks before reversion, not after.
Why extending is harder than it looks
Extending an interest-only period requires a fresh serviceability assessment, and lenders assess you on the P&I repayment over the now-shorter remaining term - which is exactly the figure extending makes worse. Each extension compounds the problem it defers.
Frequently asked questions
Can I switch back to interest-only?
Sometimes, subject to assessment and often a shorter maximum period. Owner-occupier IO is more restricted than investment IO.
Does the lender warn me?
Most write ahead of reversion, but do not rely on it. Put the date in your own calendar when the loan settles.
Is it cheaper to refinance at reversion?
Possibly, but you must pass the new lender's buffered assessment on the P&I repayment. If serviceability is tight, repricing with your current lender is the safer first move.
Related reading
- Interest-Only Loans: Who They Suit and Who They Trap
- The Home Loan Repayment Formula, Worked Step by Step
- Stress-Testing Your Own Budget at +3%
Sources
- Interest-only home loans — ASIC Moneysmart
- Prudential Practice Guide APG 223 — APRA
Rates checked as at 2 September 2026. Interest rates, lender policies and government schemes change frequently. Figures in this article are illustrative and were accurate at the date shown.
General advice warning: This article contains general information only. It does not take into account your objectives, financial situation or needs, and it is not personal credit or financial advice. Consider whether it is appropriate for you and seek advice from a licensed credit representative before acting.
Any interest rate shown is an example only and is not an offer of credit. Where a rate is quoted, the applicable comparison rate is available from the relevant lender and should be considered alongside it.
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