Investment property loans · Structure with the future in mind
Interest-only or principal and interest? Start with the strategy, not the repayment label.
The repayment structure on an investment loan affects cash flow, equity and total interest. SPECK Finance helps investors compare the practical trade-offs and coordinate lending advice with appropriate tax and financial advice.
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Interest-only repayments
During an agreed interest-only period, you pay the interest charged without reducing the principal through the required repayment. This can support short-term cash flow, but the loan balance does not reduce and the rate may be higher than an equivalent principal-and-interest option.
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Principal and interest repayments
Each repayment includes interest and a portion of principal, reducing the loan balance over time. Monthly repayments are generally higher than interest-only repayments, but equity builds from the start and total interest is generally lower over the full loan term.
Interest-only
- Lower required repayment during the IO period
- Principal does not reduce through required repayments
- Often a higher interest rate
- Higher total interest if held for the full term
Principal & interest
- Higher required repayment
- Loan balance reduces over time
- Builds equity through repayments
- Generally lower total interest over the full term
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Questions to work through
- How long do you expect to hold the property?
- What happens to your cash flow when the interest-only period ends?
- Would a principal-and-interest loan with an offset provide useful flexibility?
- How does the structure affect future borrowing plans?
- Have your accountant or tax adviser reviewed the tax consequences?
FAQ
Questions people often ask
How long can an investment loan be interest-only?
Available periods vary by lender and borrower circumstances. An interest-only term is for a set period and is subject to lender assessment.
Is all of an investment loan repayment tax deductible?
Tax treatment depends on the use of the borrowed funds and your circumstances. Interest may be deductible in some situations, while principal repayments are not. Obtain advice from a registered tax adviser.
Can I extend an interest-only period?
A lender may require a new application and serviceability assessment. Approval is not automatic, so review the position before the existing period expires.
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