What’s the Difference Between Interest-Only and Principal & Interest for an Investment Property?
Interest-only and principal & interest are two common loan repayment structures used for investment property loans. Understanding both helps you have a more informed conversation with your broker.
The appropriate loan structure will depend on individual circumstances. Borrowers may wish to discuss loan structure options with their broker and seek advice from a financial adviser or tax professional where appropriate.
Interest-Only Explained
You pay only the interest charged on the loan for an agreed period — typically 1–5 years for investment loans. Your loan balance doesn’t reduce during this time. At the end of the IO period, the loan reverts to P&I — at which point repayments increase, sometimes significantly.
Why Some Borrowers Use Interest-Only
Lower repayments preserve cash flow for other purposes. Interest on investment loans may have tax implications — borrowers should seek advice from a registered tax agent regarding their personal tax situation. Some borrowers choose interest-only loans to reduce repayments during the initial loan period.
Principal and Interest Explained
Each repayment covers the interest due plus a portion of the principal. Over time your loan balance reduces and your equity increases. P&I rates are typically lower than IO rates by 0.2–0.6%.
What Lenders Will Approve
Some lenders apply additional criteria when approving interest-only loans, including deposit size and serviceability requirements.
You may wish to speak with a licensed mortgage broker to assess your personal circumstances.
This is general information only and does not constitute financial advice. Loan structure decisions for investment properties should be made in consultation with a licensed mortgage broker and tax adviser. All loans are subject to lender approval.
Sources: ATO, Rental Properties 2025; APRA, IO Lending Restrictions Update; RBA, Housing Finance Data 2025; MFAA Industry Intelligence Service Report 2025.
