Mortgage Repayment Calculator

Your mortgage repayment amount depends on three things: the loan amount, the interest rate, and the loan term. But the type of repayment you have chosen, principal and interest (P&I) or interest-only, changes the calculation significantly.

With a principal and interest loan, each repayment covers two things: a portion of the original loan amount (the principal) and the interest charged on the remaining balance. In the early years, most of your repayment goes toward interest. As the loan balance decreases over time, more of each repayment chips away at the principal. This is called amortisation, and it is the reason your loan balance drops slowly at first and then accelerates in later years.

The formula behind P&I repayments uses the present value of an annuity calculation. You do not need to know the maths, but the key point is this: for a given loan amount and interest rate, a longer loan term means lower monthly repayments but significantly more total interest paid over the life of the loan. A 30-year term on a $600,000 loan at 6.5% costs roughly $230,000 more in total interest than a 20-year term.

With an interest-only loan, the calculation is simpler. You only pay the interest on the outstanding balance each month, and the loan balance does not decrease at all during the interest-only period. Monthly repayments are lower, but you are not building any equity through repayments. When the interest-only period ends (typically after 5 years for investors), the loan converts to P&I, and your repayments jump because you now have to repay the full principal over a shorter remaining term.

Most lenders calculate interest daily and charge it monthly. This means your actual interest cost can vary slightly depending on the number of days in the month. The calculator above uses a standard monthly compounding formula, which gives you a close approximation of what your lender will charge. For exact figures, check your loan contract or talk to your lender.

The choice between P&I and interest-only repayments is one of the most debated decisions in property investment. Both options have clear trade-offs, and the right choice depends on your cash flow, your tax position, and how long you plan to hold the property.

Interest-only loans are popular with investors for two reasons. First, the lower repayments improve cash flow during the holding period. On a $600,000 loan at 6.5%, interest-only repayments are roughly $3,250 per month compared to $3,793 for P&I. That is $543 per month, or $6,516 per year, in extra cash you can direct elsewhere. Second, since only the interest portion of a mortgage is tax-deductible (the principal repayment is not), an interest-only loan means your entire repayment is deductible. This can improve the after-tax position of a negatively geared property.

Principal and interest loans cost more each month but build equity over time. You are gradually paying down the loan, which means you own more of the property outright with each repayment. This reduces your loan-to-value ratio, which can give you better refinancing options later and reduces your risk if property values drop.

The ATO's position on deductibility is clear: only the interest component of your mortgage repayment is deductible against rental income. The principal repayment is not a deduction because it is not an expense; it is a repayment of borrowed capital. This applies equally to P&I and interest-only loans. With P&I, your lender's statement will show the interest and principal split for each repayment. For a full overview of what you can and cannot claim, see our guide to rental property tax deductions.

Many investors use interest-only loans in the early years when cash flow is tight and the property is negatively geared, then switch to P&I later as rents increase and the property approaches positive gearing. However, lenders have tightened access to interest-only lending since APRA introduced stricter serviceability requirements. You may need to demonstrate a clear investment rationale to secure or extend an interest-only period.

Neither option is universally better. What matters is that you understand the cash flow and tax implications of each, and model both scenarios before committing. The calculator above lets you compare them side by side.

An offset account is a transaction account linked to your mortgage. The balance in the offset account is subtracted from your loan balance before interest is calculated. If you have a $600,000 loan and $50,000 sitting in your offset account, you only pay interest on $550,000. The result is lower interest charges each month without actually making extra repayments on the loan.

For investors, offset accounts have a specific structural advantage over making direct extra repayments or using a redraw facility. When you put money into an offset account, the loan balance itself does not change. The full $600,000 remains on the books. This matters because if you later redraw funds from a loan for personal use, the interest on that redrawn portion is no longer tax-deductible. With an offset, you avoid this problem entirely because the loan balance was never reduced. Our borrowing expenses guide covers this offset-versus-redraw distinction in more detail.

The interest saving from an offset account is equivalent to earning a return at your mortgage interest rate, tax-free. If your mortgage rate is 6.5%, every dollar in your offset account is effectively earning you 6.5% after tax. Compare that to a savings account paying 5% before tax, which nets you around 3.25% after tax at the 37% marginal rate. For most investors, parking surplus cash in an offset account is one of the most efficient uses of available funds.

How much does an offset actually save? On a $600,000 P&I loan at 6.5% over 30 years, maintaining a $50,000 offset balance from the start reduces your total interest by roughly $150,000 over the life of the loan and shortens the loan term by about 4 years. Even a smaller balance makes a difference: $20,000 in offset saves approximately $70,000 in interest over 30 years.

Not all offset accounts are full 100% offset accounts. Some lenders offer partial offset, where only a portion of your balance reduces the interest calculation. Check the terms before assuming your offset is working at full capacity. Offset accounts may also come with a higher interest rate or monthly fee compared to a basic loan package, so make sure the interest saving outweighs any extra costs.

Let's put real numbers on the P&I versus interest-only comparison. We will use a $600,000 investment loan at 6.5% interest with a 30-year loan term.

Interest-only repayments:

• Monthly repayment: $3,250
• Annual repayment: $39,000
• Entire repayment is interest, so the full $39,000 is tax-deductible
• At the 37% marginal rate, the tax saving is roughly $14,430 per year
• After-tax cost: approximately $24,570 per year
• Loan balance after 5 years: still $600,000 (no principal paid)

Principal and interest repayments:

• Monthly repayment: $3,793
• Annual repayment: $45,516
• In year one, roughly $38,750 is interest and $6,766 is principal
• Only the interest portion ($38,750) is tax-deductible
• At the 37% marginal rate, the tax saving is roughly $14,338
• After-tax cost: approximately $31,178 per year
• Loan balance after 5 years: roughly $556,000 ($44,000 in equity built)

The cash flow difference is $543 per month, or $6,516 per year, in favour of interest-only. After accounting for the tax deduction, the after-tax difference narrows to about $6,600 per year. That is real money you could use for repairs, other investments, or simply as a cash flow buffer.

But here is the trade-off. After five years on interest-only, you still owe the full $600,000. When the loan reverts to P&I for the remaining 25 years, your monthly repayment jumps to $4,081, which is $831 more than the original interest-only amount. If rents have not increased enough to cover that jump, your cash flow takes a hit at the worst possible time.

With P&I from the start, after five years you have $44,000 in equity from repayments alone (before any capital growth), and your repayment amount stays stable for the full 30 years. There are no sudden jumps. For a detailed look at how these costs affect your overall cost of owning a rental property, model your actual loan terms with the calculator above.

If you have a variable rate mortgage, your repayments change whenever your lender adjusts the rate, which usually follows an RBA cash rate decision within a few weeks. Even a small rate change has a noticeable impact on a large loan balance.

On a $600,000 P&I loan with 25 years remaining, a 0.25% rate increase (from 6.50% to 6.75%) adds roughly $95 per month to your repayment. That is about $1,140 per year. A 0.50% increase doubles that to roughly $190 per month or $2,280 per year. Over two or three rate rises, the cumulative impact can add up to several thousand dollars annually. For investment property owners, the higher interest is a larger tax-deductible expense, which offsets some of the cash flow impact, but it does not eliminate it entirely.

Fixed rate loans protect you from rate increases during the fixed period, typically 1 to 5 years. Your repayment stays the same regardless of what the RBA does. The trade-off is that you lose flexibility: most fixed loans charge break costs if you want to refinance or sell during the fixed term, and you cannot make unlimited extra repayments. When the fixed period ends, you revert to the lender's variable rate, which may be higher or lower than when you originally fixed.

Split loans are a middle ground. You fix a portion of the loan for protection against rises and leave the rest on variable for flexibility. For example, fixing 60% and leaving 40% variable means rate increases only affect 40% of your balance, while you can still make extra repayments or use an offset account on the variable portion.

It is worth knowing that banks use a buffer rate when assessing your borrowing capacity. Most lenders add 3% above the current rate when calculating whether you can service the loan. So if you are applying at 6.5%, the bank tests your ability to repay at 9.5%. This buffer exists to make sure borrowers can withstand rate increases, but it also limits how much you can borrow. If you are planning your next purchase, understanding how rate changes affect your borrowing power is just as important as how they affect your current repayments. For a broader view of the financial side of buying, our first investment property checklist covers what to think about before and after settlement.