What is principal and interest?
P&I repayments cover both the interest charged for the period AND a portion of the loan principal, so the loan balance reduces month-by-month and the loan pays off over the agreed term.
Principal and interest (P&I) is the standard home-loan repayment structure. Each scheduled payment covers the interest charged for the period plus a chunk of the loan principal, calculated using the amortisation formula so the loan retires fully over the term you've chosen.
Early in the loan most of each payment is interest because the balance is large; later, as principal shrinks, the interest portion drops and the principal portion grows. A 30-year $500,000 loan at 6% needs about $3,000 a month — the first month is roughly $2,500 interest and $500 principal; the final month is roughly $15 interest and $2,985 principal.
P&I is the only repayment type that genuinely retires the loan. Interest-only loans (see below) keep the balance flat for the IO period.
P&I · principal and interest repayments · principal & interest
- Interest-only (IO) — An interest-only loan asks you to pay only the interest charge each period — the loan principal stays unchanged until th…
- Amortisation — Amortisation is the gradual reduction of a loan balance through scheduled principal-and-interest repayments — each perio…
General information only — not personal financial advice. Verified against https://ratesniffers.com.au/glossary on 2026-06-01.