Interest-Only vs P&I for
Investment Properties

How interest-only works for investors

With an interest-only (IO) loan, you pay only the interest on the borrowed amount for a set period, typically one to five years. Your monthly repayments are lower, and none of the repayment reduces the loan balance. At the end of the IO period, the loan converts to principal and interest (P&I) and repayments increase significantly.

For investors, the key benefit is cash flow. Lower repayments mean more money available for other purposes — whether that is saving for the next deposit, covering holding costs, or building a buffer for vacancies. Additionally, since interest on investment loans is generally tax-deductible, paying more interest (as a proportion of total repayments) can increase your tax deduction.

The total cost difference

While IO loans improve short-term cash flow, they cost more over the life of the loan. Because you are not reducing the principal during the IO period, you pay interest on the full balance for longer. On a $500,000 loan at 6.5 per cent, a five-year IO period followed by 25 years of P&I could cost approximately $50,000 to $80,000 more in total interest compared to 30 years of P&I from day one.

Read our full guide on investment property loans for more on structuring your investment borrowing.

Frequently asked questions