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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.

10 Oct 2026Updated 10 Oct 20267 min read

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 Investment Loans to P&I Without Killing Your Cashflow

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.

Comparison graphic of interest-only versus principal-and-interest repayments on an investment loan. 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.

FeatureInterest‑Only (IO)Principal & Interest (P&I)
Loan amount$700,000$700,000
Rate (illustrative only)6.50%6.10%
Term remaining25 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 riskLower in short termHigher in short term
Long‑term interest paidHigher overallLower 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:

  1. Reset the loan term (e.g. back to 25 or 30 years).
  2. Choose a sharper P&I rate.
  3. 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.

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Frequently asked questions

Is it worth refinancing my investment loan from interest-only to principal-and-interest now?▾
It can be worth refinancing to principal-and-interest if you can handle the cashflow impact, secure a sharper rate, and want to start reducing debt. The key is to model the new repayment at current and buffered rates, check each property’s cashflow, and consider tax effects. If the numbers work and rates or IO terms are expiring, acting early usually gives you more lender options.
How can I reduce repayment shock when my investment loan switches to P&I?▾
You can reduce repayment shock by extending the loan term, splitting the loan so only part moves to P&I initially, and using an offset account to smooth cashflow. Cleaning up other high-cost debts and stabilising business loans before you refinance also helps. The goal is to shrink the monthly gap or ensure your broader cashflow and buffers comfortably cover it.
Does changing from IO to P&I affect my tax deductions on an investment property?▾
Yes. Interest remains deductible to the extent the loan relates to the investment, but principal repayments are not deductible. Over time, as you repay principal, your deductible interest will generally fall. That’s not necessarily bad – you’re reducing debt – but you need to factor the reduced deduction into your after-tax cashflow planning.
Can I still use an offset account with an investment loan on P&I?▾
Yes, many lenders offer offset accounts linked to investment loans, including P&I structures. An offset lets you reduce interest while keeping cash accessible, which is useful during a transition from IO to P&I. Just avoid running business working capital or private spending through the offset in ways that might blur loan purpose or complicate ATO records.
What if I own multiple investment properties all coming off IO at once?▾
When several loans roll off IO together, you need a portfolio-level plan. That usually means staggering refinances, prioritising properties with the weakest cashflow, and using splits and term changes to spread the impact. A broker who understands both tax and business cashflow can help you decide which loans move to P&I first and which may need to stay IO longer, subject to serviceability and risk.

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