Interest-Only vs Principal & Interest: What Property Investors Should Consider
Choosing between interest-only and principal and interest repayments is a key decision for property investors. Each option affects cash flow, borrowing capacity, and long-term strategy differently. Understanding the pros and cons of interest-only versus principal and interest loans helps investors align their lending choices with their investment goals.
What Is an Interest-Only Loan?
An interest-only loan allows you to pay only the interest on the loan for a set period, usually several years.
This keeps repayments lower during the interest-only period.
What Is a Principal & Interest Loan?
With a principal and interest loan, repayments cover both the interest and a portion of the loan balance.
This gradually reduces the debt over time.
Cash Flow Considerations for Investors
Interest-only loans can improve cash flow by keeping repayments lower, which may help investors manage multiple properties.
Principal and interest loans generally have higher repayments but reduce debt faster.
Impact on Borrowing Capacity
Some lenders assess borrowing capacity differently depending on repayment type.
Interest-only loans can reduce serviceability with certain lenders due to higher assessment rates.
Long-Term Strategy and Flexibility
Interest-only loans may suit growth-focused strategies, while principal and interest may appeal to investors prioritising debt reduction.
The right choice depends on goals, cash flow, and portfolio stage.
Policy Restrictions on Interest-Only Lending
Interest-only lending is subject to tighter policies and may not be available to all investors.
Lender appetite can change over time.
Why This Matters for Australian Property Investors
Australian lenders apply conservative assessment rules, and choosing the wrong repayment type can limit future options.
How The Finance Brokers Can Help Property Investors
The Finance Brokers help investors assess whether interest-only or principal and interest repayments best suit their strategy. They also identify lenders whose policies align with investment goals.
Reviewing Your Repayment Strategy?
If you’re unsure which repayment type suits your investment plan, expert advice can help you make a strategic decision.
Book a strategy session with The Finance Brokers
Final Thoughts
Interest-only and principal and interest loans both have a place in property investing. Understanding how each affects cash flow, borrowing power, and flexibility helps investors choose the right option at the right time.
