Loan structure
Interest-only home loans NZ
An interest-only loan lets you pay just the interest for a set period, so your repayments are lower for now. The loan balance doesn’t go down, and the bill arrives later.
By Yatin Kainth, Financial Adviser. Last reviewed
You can calculate an interest only mortgage with the free calculator below. An interest-only home loan means you pay only the interest for an agreed period, commonly up to five years, and the loan balance stays the same. It lowers repayments in the short term. Investors use it most, but it costs more interest overall, and banks still check you can afford full repayments.
How does interest-only work?
On a normal principal and interest loan, every repayment pays some interest and some of the loan. On interest-only, you pay the interest and nothing else. When the interest-only period ends, the loan switches to principal and interest over the remaining term. Because that term is now shorter, the repayments jump.
What it costs: a worked example
| $600,000 at 5.50% | Monthly repayment |
|---|---|
| Principal and interest over 30 years | about $3,407 |
| Interest-only for the first 5 years | $2,750 |
| Then principal and interest over the remaining 25 years | about $3,685 |
Five years of interest-only saves about $657 a month at the start, but it adds roughly $44,000 of interest over the life of the loan (about $670,000 in total interest against $626,000). This assumes the rate stays at 5.50%, which it won’t, so treat it as a guide.
Calculate your interest only mortgage (NZ calculator)
Interest-only, weekly
–
Interest-only, fortnightly
–
Interest-only, monthly
–
Principal and interest after interest-only ends (monthly)
–
Principal and interest from day one (monthly)
–
Extra interest vs principal and interest from day one
–
Illustrative only. Weekly and fortnightly figures are annual interest divided by 52 or 26. Principal and interest figures are monthly and assume the rate stays the same for the whole loan. Not a quote.
Interest only mortgage lenders and calculator NZ
Most NZ banks and some non-bank lenders offer an interest only mortgage, but policy on how long, for whom and at what rate differs a lot between interest only mortgage lenders. I compare 30+ lenders, so I can tell you who is likely to say yes before you apply. For a standard repayment estimate, use the mortgage calculator. If you are thinking of switching lenders, see refinancing your home loan.
Who is interest-only for?
- Property investors, who often prefer to keep cash flow up and pay down their own home first.
- Owner-occupiers going through a short squeeze, like parental leave, a business start-up, or the middle of a renovation or build.
- People with a clear plan to reduce the loan another way, such as selling another property.
For most people buying their own home, I’d rather see principal and interest from day one, with interest-only kept for a specific reason and a set time.
How long will a bank allow interest-only?
It varies by lender and by purpose. Owner-occupiers are usually limited to a shorter period, and investors can often get longer or roll it over. Banks will check that you could afford full principal and interest repayments, not just the interest, so it doesn’t let you borrow more.
Tax on rental property interest
For residential rental property, interest is fully deductible again from 1 April 2025, under IRD’s current rules. Loss ring-fencing still applies, so a rental loss can’t be offset against your salary. Talk to your accountant about your situation. See property investment loans.
Common questions
Can I get an interest-only mortgage on my own home?
Yes, some lenders offer it to owner-occupiers, usually for a limited period and for a clear reason. Expect the bank to check you can afford full repayments too.
How do I calculate an interest only mortgage repayment?
Multiply the loan by the annual interest rate to get the yearly interest, then divide by 52 for weekly, 26 for fortnightly or 12 for monthly. The calculator above does this and also shows the higher principal and interest repayment once the interest-only period ends.
Is interest-only more expensive?
Yes, over the life of the loan. Because the balance doesn’t reduce during the interest-only period, you pay interest on the full amount for longer.
What happens when the interest-only period ends?
The loan normally switches to principal and interest over the remaining term, so repayments go up. Some lenders will consider extending interest-only, but it isn’t automatic.
Is rental property interest tax deductible in NZ?
For residential rentals, yes, in full from 1 April 2025 under IRD’s current rules. Check with your accountant for your own situation.