Investment loans

An investment loan can be structured as interest-only and interest-in-advance loans. Choosing interest only may be a short-term strategy or a long-term game plan.

Interest-only loans
Interest-only mortgage repayments can be a strategy to free up cash flow as you’re committed to only paying the interest component (i.e. less than a principal and interest amount) or it can be a strategy to maximise the potential tax benefits on an investment property.

A desire to free up your cash flow can be due to a short-term change in lifestyle needs or circumstances, or due to a change in finances overall.  

How interest-only repayment work

Loan features/structure

Things to think about

Lenders limit interest-only repayments for different periods on owner-occupier loans vs investment loans
Only allowed for a set period during the loan term
Must lock in with lender a set period for making interest-only repayments
When the interest-only term ends, the principal and interest repayments will be higher when compared to paying on this basis from the outset
Must set up with lender before fixing an interest rate
Slows down the rate of equity building and could impact your borrowing capacity
Interest-only rate is generally higher
More interest will be paid overall

Interest-in-advance loans

Paying interest in advance is prepaying the interest for the year ahead as a lump sum.

When considering any tax advantages, it’s best to seek advice from your accountant/tax professional.

Loan features/structure considerations:

  • Must be an investment loan with interest-only, fixed rate.
  • Interest in advance as a feature must be locked in at the loan’s start.
  • Five years must be left in the contract.