Interest-only vs principal & interest for investors
The trade-offs between interest-only and principal & interest repayments for investment loans. General information, not financial or tax advice.
8 June 2026 · By Foundation Finance · Last reviewed 10 June 2026
What we can — and can’t — advise on
Foundation Finance operates as a credit representative under an Australian Credit Licence. We can advise on the credit product — the loan itself, how it’s structured, and which lenders suit your situation. Whether a self-managed super fund, trust or company structure is right for you is financial product, tax and legal advice, which sits with your licensed financial adviser, accountant or solicitor. This page covers the credit side only.
A common investor decision is whether to pay interest-only (IO) or principal & interest (P&I). There's no single right answer — it depends on your goals and cash-flow. This is general information about loan features, not financial or tax advice.
Interest-only
You pay only the interest for a set period (often 1–5 years), so repayments are lower during that time.
Pros: lower repayments, more cash-flow flexibility, often used by investors.
Cons: you're not reducing the loan, the rate is often a little higher, and repayments jump when the IO period ends.
Principal & interest
You pay down the loan from the start.
Pros: you build equity faster and usually get a slightly lower rate.
Cons: higher repayments now.
How it affects borrowing capacity
Lenders assess IO loans on the repayments after the IO period, which can affect serviceability — see the serviceability ceiling. Model repayments with our repayments calculator.
The tax angle
The deductibility of interest depends on your circumstances and how the property is held — that's a question for a registered tax agent, not us.
We can help
We'll explain the trade-offs for your situation and structure the loan accordingly. See investment loans or get in touch.
Who handles what
Getting it right usually means a small team. Here’s who does which part — we’ll gladly work alongside your other professionals.
Us (Foundation Finance)
The loan — structure, features, lender selection, serviceability and the application.
Licensed financial adviser (AFSL)
Whether an SMSF or investing via super suits you, and any financial-product advice.
Registered tax agent / accountant
Your tax position — negative gearing, deductions and CGT for your circumstances.
Solicitor
Legal structures, trust deeds, contracts and asset protection.
Quantity surveyor
An ATO-compliant tax depreciation schedule for your property.
General advice warning: The information on this page is general in nature and factual only. It does not take into account your objectives, financial situation or needs, and is not financial product, tax, credit or legal advice. Tax, superannuation and SMSF outcomes depend on your circumstances — speak to a registered tax agent and a licensed financial adviser before acting. Any estimates or calculator results are indicative only and not an offer of credit, a quote, or a guarantee of approval or savings.
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