Can I switch from interest only to principal and interest early?

Generally yes. You can ask your bank to switch at any time, and it's usually a simple change that starts from the next repayment.

Is the interest rate higher on interest only loans?

Yes, lenders usually charge a loading because you're not paying the debt down. The gap varies by lender and is often wider on owner-occupied loans.

What happens when my interest only period ends?

The loan rolls onto principal and interest automatically. Repayments go up because you're paying off the whole debt over the remaining term.

Can I extend my interest only period?

Sometimes. It usually needs a fresh assessment of your income and expenses, so it isn't guaranteed. Start the conversation a few months before it ends.

Why do investors choose interest only?

Lower repayments mean better cash flow on the property each month, even though the rate is higher. You have to look at cash flow, not just rate.

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Interest only: what does it cost, what happens when it ends, and can I switch back?

Bayley Clarke · Mortgage broker on the road · Last checked 11 November 2026 · 3 min read

The short answer

Last part first: you can switch back to principal and interest at any time. You don't need to wait for the interest only period to end. You ask the bank to put the loan back to principal and interest, and it's usually done from the next repayment.

Interest only generally costs you a higher rate than the same loan on principal and interest, because you're not paying down any of the debt. People still choose it because the repayments are lower, which helps cash flow, especially on an investment property. When it ends, you roll onto principal and interest automatically unless you've lined something up first.

The 90 second version, filmed from the driver's seat. The rest of this page is the detail underneath it.

What interest only costs you

Banks charge a loading on interest only compared with the same loan on principal and interest. The reason is simple: you're not paying any of the debt down, so the bank carries more risk for longer. How big that gap is varies between lenders, and it's often wider on a home you live in than on an investment property.

So on rate alone, interest only costs more. And because none of your repayment goes off the balance, you'll pay more interest over the life of the loan too. That's the price of the lower repayment. It's worth knowing the size of the gap on your loan before you pick it, not just assuming it's small.

Why people still choose it

The repayments are lower. If you hold an investment property, that means it costs you less each month to own it, because your loan repayment is smaller even though the rate is higher. Your cash flow improves, and that can be the difference between an investment that's comfortable to hold and one that squeezes you every month.

That's why you have to look at cash flow, not just the rate, when we're comparing repayments. For some investors, interest only on the investment loan while they throw everything at the home loan makes a lot of sense. For a home you live in, it's harder to justify for long, because you're not building any equity through repayments.

What happens when it ends

When the interest only period finishes, the loan automatically rolls onto principal and interest at your bank's current rate for that loan. The repayment jumps, and often by more than people expect, because you're now paying off the whole debt over the years left on the loan rather than the full original term.

If you're savvy, we get something ready in advance. That might be asking your current bank to extend the interest only period, which usually means a fresh assessment of your finances, so it isn't automatic. Or if it makes sense to move, we have everything lined up to switch to a new lender the day your interest only period expires, so you're not stuck on whatever rate you roll onto.

The honest bit: plan the end before you start

Interest only is a tool, not a free lunch. It costs more in rate and in total interest, and the day it ends the repayment goes up. None of that is a problem if you knew it was coming and had a plan.

The people who get caught are the ones who forget the end date until the higher repayment comes out of the account. Put the date in your calendar and give yourself a few months to look at your options.

Interest only period ending, or thinking about starting one?

A 30 minute call. We look at what your repayments become, whether extending or switching makes sense, and what it does to your cash flow.

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