Free Interest-Only Mortgage Calculator for New Zealanders
Work out your repayments on an interest-only home loan, the total interest you will pay across the IO period, and the balance still owing when the period ends.
Your loan
Based on a $650,000 interest-only loan at 6.50% over 5 years.
About our Interest-Only Mortgage Calculator
$640,000 on interest-only at 6.20% costs $3,307 a month, pure interest. The principal balance stays at $640,000 throughout the IO period, which is what makes IO useful for property investors maximising deductible interest, and risky for owner-occupiers who would otherwise be paying down debt.
How to use it
Enter your loan balance, interest rate, and IO period in years. The calculator returns periodic interest payments, total interest over the IO period, and the balance still owing when IO ends.
Why use it
For property investors comparing IO and P&I structures, and for owner-occupiers being offered a temporary IO arrangement during hardship.
The maths behind it
Periodic interest payment = Loan × Periodic rate On an interest-only loan, each repayment covers the interest accrued over the period and nothing else. The principal balance does not reduce. After the IO term ends, repayments switch to principal-and-interest at the remaining balance over the remaining term.
Worked example
Yusra, property investor in Mosgiel, with a $640,000 loan on interest-only at 6.20%.
Yusra owns a rental in Mosgiel with a $640,000 loan structured as interest-only for 5 years. Annual interest at 6.20%: $39,680. Monthly: $3,307.
Over the 5-year IO period, Yusra pays $198,400 of interest and reduces the principal by zero. After IO, the loan switches to P&I over the remaining 25 years, with monthly repayments rising to about $4,205.
Yusra’s rental cash flow at $750/week ($39,000/year) covers the IO interest with about $700/month margin. After the IO period the same rent has to cover the higher P&I figure plus rates and insurance, which is the cash-flow squeeze most NZ investors plan around.
Things to keep in mind
- Owner-occupier IO is hard to get. NZ banks rarely offer interest-only on owner-occupier home loans. IO is mostly for investors and, occasionally, for borrowers in temporary financial hardship.
- Step-up at IO end. The shift from IO to P&I produces a step-up in monthly repayments of 25-40%, depending on remaining term and rate. Plan the cash-flow ahead.
- Interest deductibility for rentals. Interest on residential rental loans is fully deductibleInterest deductibilityPercentage of rental-mortgage interest a landlord can deduct against rental income.View in glossary → from the 2025/26 income year. IO maximises the deductible interest each year.
- No principal reduction during IO. The loan balance at the end of the IO period is the same as at the start. Equity grows only through property-value appreciation; the borrower is not paying down debt.
NZ-specific notes
FAQs
Can I get an IO loan as an owner-occupier?
Some banks offer it for short windows (typically 1-2 years), often around hardship cases. Standard owner-occupier lending is usually P&I.
Is IO cheaper than P&I?
Per-month, yes (interest only, no principal). Total cost over the loan life is higher (no principal reduction during IO means more interest accrues longer).
When does IO end?
Most NZ IO loans run 1-5 years, with a few up to 10. The agreement specifies the end date. Some loans roll into another IO term on review; others auto-convert to P&I.
How does IO affect LVR over time?
LVR drops only if property value rises. Without principal reduction, the loan balance stays flat; only valuation movement changes the LVR.
References & sources
- Reserve Bank of New Zealand, "Mortgage interest rates". rbnz.govt.nz
- Inland Revenue, "Interest deductions on residential investment property". ird.govt.nz
- Reserve Bank of New Zealand, "LVR restrictions". rbnz.govt.nz