Principal & Interest vsInterest-Only: Which Investment Loan Strategy Is Right for You?

When it comes to financing an investmentproperty, one of the first big decisions is how you’ll repay your loan —and there are two main options

1. Principal and Interest (P&I)
2. Interest-Only (IO)

Each comes with its own benefits,drawbacks, and tax implications — and choosing the right one can have asignificant impact on your cash flow, tax strategy, and long-termwealth.

Let’s break them down.

🔹Principal and Interest (P&I) Loans

With a P&I loan, you repay both:

• The interest charged on the money you’ve borrowed, and
• The principal — the actual amount of the loan

This means your repayments are higher, butyou’re steadily reducing your debt over time.

✅ Pros:

• You’re building equity in the property from day one
• Lower total interest paid over the life of the loan
• May get a slightly lower interest rate from the lender
• Can improve your borrowing capacity long-term

⚠️ Cons:

• Higher monthly repayments = tighter cash flow
• May reduce your ability to invest in multiple properties     upfront

Good for:
Long-term investors, low-risk profiles, or those aiming to pay off debt sooner.

🔹Interest-Only (IO) Loans

With an interest-only loan, you onlyrepay the interest on the loan — not the principal — for a set period (usually1 to 5 years). After that, the loan reverts to P&I.

The result? Much lower monthly repaymentsin the short term.

✅ Pros:

• Better cash flow during the interest-only period
• Potentially tax-deductible interest (speak to your accountant)
• Frees up capital for renovations, other investments, or savings
• Can suit “rentvesting” or aggressive portfolio growth     strategies

⚠️ Cons:

• You’re not paying down your loan balance
• Higher interest rates than P&I (in most cases)
• Repayments can jump significantly once the IO period ends
• You’ll pay more interest overall across the life of the     loan

Good for:
Experienced investors, those focused on capital growth, or anyone needingstrong cash flow early in their investment.

🧠 So,Which One’s Better?

There’s no one-size-fits-all answer. Itdepends on your strategy, goals, and stage of life.

⚖️ A Word on Tax

Many investors choose interest-only loansto maximise tax deductions through negative gearing. While that can beeffective, it’s essential to remember:

• Only the interest is tax-deductible,     not the principal
• Always speak to a qualified tax adviser before deciding based     on deductions
• Don’t choose interest-only just for the tax benefits — the     strategy should still align with your bigger financial picture

Final Thoughts

Both interest-only and principal &interest loans have their place in smart property investing. The key is tochoose the structure that fits your goals, time frame, and cash flowposition — not just the one with the lowest short-term repayments.

As a mortgage broker, I help clients lookbeyond the numbers and structure their loans in a way that works long term— whether it’s their first investment property or their fifth.

Ready to Chat Investment Strategy?

Whether you're planning to buy your firstinvestment or reviewing your existing loans, I’d be happy to help you:

• Compare interest-only vs P&I based on your goals
• Understand how repayments will change over time
• Explore loan products with the best rates and features
• Build a finance strategy that supports your portfolio growth

📞 Booka free consultation today and let’s talk about what’s right for you.