Glossary · Australian property
Principal and interest loan.
A mortgage repayment structure where each monthly payment includes both interest charged and a portion of the loan balance, so the loan amortises down over time. Standard for owner-occupier loans. APRA-restricted to most loans on a 30-year amortisation schedule.
Structure: monthly payment = interest charge + principal amortisation. Over a 30-year P&I loan, you pay back the full principal plus the cost of the interest. Each year, a slightly larger share of each repayment goes to principal as the balance declines (amortisation curve).
Why it's the default: regulatory and structural. APRA requires lenders to assess loans on P&I serviceability in most cases. IO loans face caps and stricter buffers. Most lenders offer P&I as the default and only allow IO during specific phases (typically 1-5 years, then auto-converts to P&I).
Math: $700K loan at 6.4% over 30 years P&I, ~$4,378 monthly payment. Year 1 split: ~$3,733 interest plus $645 principal. Year 30 split: ~$22 interest plus $4,356 principal. Total interest over the loan life: ~$876,000 (more than the principal itself, the cost of borrowing over a long horizon).
Levers to reduce P&I cost: (a) maximum offset balance (cuts daily interest), (b) extra repayments above scheduled minimum (compounds effect), (c) refinance during rate-fall windows (reduces rate × balance), (d) shorter term if you can service it (15-year P&I dramatically lower total interest, much higher monthly).
Source
APRA APG 223 §44-58 (serviceability); ASIC RG 209 (responsible lending).
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