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.
Investors may choose interest-only and interest-in-advance loans for their investment properties for various reasons. These loan types offer benefits such as cash-flow management, tax advantages, the ability to leverage capital more effectively, and lower initial costs for those with short-term investment strategies.
Conversely, these loan structures can also have downsides depending on various factors and scenarios. The Get Real Finance team can help to guide you through the position for you to make informed decisions over the life of your loan.
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
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: