Paying it off
Interest only vs principal and interest
Interest-only lowers the repayment and changes nothing about the debt. This shows both halves: the cash flow relief during the interest-only period, and the higher repayment and larger total that follow it.
Your numbers
600,000
Result
Repayment during interest only
$3,125.00
- Repayment once it reverts
- $3,958.02
- The step up
- $833.02
- Principal and interest repayment throughout
- $3,694.30
- Total cost, interest only first
- $1,374,905
- Total cost, principal and interest throughout
- $1,329,949
- Extra paid for the interest-only period
- $44,956
A 27% rise, on one day.
- Total, IO then P&I$1,374,905
- Total, P&I throughout$1,329,949
The balance at the end of the interest-only period is exactly what it was at the start. Nothing has been repaid.
What this does not tell you · It says nothing about the tax treatment of an investment loan, which is often the whole reason interest-only is being considered.
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