The loan does not disappear at the end of interest-only
During an interest-only period, the required repayment generally covers interest but does not reduce the principal balance. When that period finishes, the loan typically switches to principal-and-interest repayments unless it is refinanced or another arrangement is approved.
The key issue is that the same principal may now need to be repaid over fewer years, so the required repayment can rise even if the interest rate does not change.
Prepare before the switch date
A review well before the interest-only expiry can consider:
Future cash flow
Can the higher principal-and-interest repayment be comfortably managed?
Loan purpose
Does interest-only still support the investment strategy, or is reducing principal now more important?
Remaining term
Extending or resetting a term can reduce repayments but may increase total interest.
Refinance eligibility
Do not assume another lender will automatically approve a new interest-only period. Serviceability, policy and property factors still apply.
Tax advice
The tax treatment of investment-loan interest depends on circumstances and should be discussed with a tax professional.