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.

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.

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.