Australian Property Investment Blog by Micah Keall-Grant

This is a common question for property investors, and one where the choice is becoming increasingly difficult! First let’s quickly define these two terms: Interest-Only Loan (I/O):  You only have to make interest payments on the outstanding mortgage amount (for a certain period of time, typically 5 years, after which the loan will be converted back to P+I, or refinanced for another I/O term). Principal and Interest Loan (P+I):  You have to make payments off the principal loan amount, in addition to the interest payments. As the loan progresses, you pay proportionally higher principal, and less interest. As an example, if you have a 30 year, $500k loan at 4% p.a. interest : Amount payable with I/O - $20,000 per year Amount payable with P+I - $28,650 per year Repayments are obviously higher with P+I, however this does mean you are paying off your balance and therefore your total interest payment over the life of the loan will be lower. Interest-only loans have be...