Principal & interest vs interest-only
Understanding the difference between P&I and interest-only repayments is crucial for choosing the right loan structure.
Principal & interest (P&I)
Each repayment reduces your loan balance (principal) and pays the interest. You build equity faster and pay less interest overall.
Interest-only (IO)
You only pay the interest component. Your loan balance doesn't reduce during the IO period. Lower repayments short-term.
Who chooses interest-only?
Primarily investors seeking to maximise cash flow and tax deductions. Also used by owner-occupiers in specific circumstances.
IO period limits
Most lenders allow IO periods of 1–5 years for owner-occupiers and up to 10 years for investors. After the IO period, repayments switch to P&I.
The cost of interest-only
You pay more interest overall with IO loans. The loan balance doesn't reduce, so you're paying interest on the full amount for longer.
Switching between types
WeBroke can help you switch between P&I and IO as your circumstances change — for example, when an investment property becomes your home.
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