Interest-Only vs Amortising Loans: What the Risk Really Is

Interest-only sounds cheaper — but comes with risk

Interest-only payments can be lower than amortising payments because you’re not reducing principal. But the balance remains largely unchanged, meaning you may face a bigger payment later or need a plan to repay the principal.

When it might be used

• Short-term cashflow constraints with a clear exit plan
• Specific investment structures (with professional advice)

Key risks

• You may not build equity quickly
• You can be exposed if rates rise
• You may face a repayment shock when the structure changes

Bottom line

If you ever consider interest-only, treat it as a specialized option and get professional guidance. For most households, a buffer + amortising repayment is safer.

Quick recap

• Compare scenarios side-by-side using tools.
• Build buffers to survive rate and cost shocks.
• Confirm exact numbers and rules with official sources.

Suggested next step

Open Rate-Change Impact and run a +1% and +2% scenario. Then use Budget Buffer to set a buffer target that fits your income.