Article
Refinancing Investment Loans to P&I Without Killing Your Cashflow
A practical, numbers-based guide to refinancing an investment loan from interest-only to principal-and-interest in Australia, while keeping your cashflow and tax position under control.
Key Takeaway
Refinancing an investment loan from interest-only to principal-and-interest without killing cashflow requires modelling the repayment increase, using APRA’s 3% serviceability buffer, and reshaping other debts to absorb the shock. A typical $700,000 loan shifting from 6.5% interest-only to 6.1% P&I over 25 years can lift monthly repayments by around $1,000. Investors can manage this by adjusting loan terms, using offsets, and sequencing changes across their portfolio to keep each geared property sustainably cashflow positive.
Refinancing an investment loan from interest‑only (IO) to principal‑and‑interest (P&I) without killing cashflow comes down to three things: correctly measuring the repayment jump, reshaping other debts and buffers around it, and timing the move while APRA’s 3% serviceability buffer still works in your favour. Done well, you can keep the property, reduce long‑term interest, and protect your borrowing capacity for the next deal.
Quick answer: model the new P&I repayment at both current rates and +3%, map the gap to your real cashflow, then use term changes, splits and offset accounts to absorb the increase before you sign any refinance paperwork.
Interest-only keeps repayments lower now, while principal-and-interest steadily reduces your debt.
1. What actually changes when you move from IO to P&I?
Key differences: IO vs P&I on investment loans
On an IO loan you only pay interest, so cashflow is lighter but the debt never falls. On P&I, repayments are higher because each payment includes principal, but your balance reduces over time.
Here’s a simple comparison for the same $700,000 investment loan.
| Feature | Interest‑Only (IO) | Principal & Interest (P&I) |
|---|---|---|
| Loan amount | $700,000 | $700,000 |
| Rate (illustrative only) | 6.50% | 6.10% |
| Term remaining | 25 years (but IO for 5) | 25 years |
| Monthly repayment (approx) | $3,792 (interest only) | $4,553 (P&I) |
| Monthly difference | – | +$761 vs IO |
| Principal repaid after 5 years | $0 | ~$85,000–$95,000 (rate‑dependent) |
| Cashflow risk | Lower in short term | Higher in short term |
| Long‑term interest paid | Higher overall | Lower overall |
Figures indicative only. Always get personalised calculations before making decisions.
The “repayment shock” in this example is about $760 per month. If you don’t plan for it, it hits your personal or business cashflow directly.
Why lenders push IO to P&I
Most lenders only offer IO on investment loans for 5 years at a time. When the IO period expires, they automatically flip you to P&I over the remaining term, which can make the shock worse.
Refinancing before that cliff lets you:
- Reset the loan term (e.g. back to 25 or 30 years).
- Choose a sharper P&I rate.
- Restructure the portfolio rather than reacting under pressure.
For timing strategy around rate cycles and APRA buffers, see /insights/timing-portfolio-refinances-apra-buffers-rate-cycles.
The strategy continues below
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Frequently asked questions
Is it worth refinancing my investment loan from interest-only to principal-and-interest now?▾
How can I reduce repayment shock when my investment loan switches to P&I?▾
Does changing from IO to P&I affect my tax deductions on an investment property?▾
Can I still use an offset account with an investment loan on P&I?▾
What if I own multiple investment properties all coming off IO at once?▾
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