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Principal & Interest Vs. Interest Only

P&I vs IO:⠀

First things first…What are they 🤔🤔⠀

P&I is where you pay down the balance of the loan + the interest over a set period of time.⠀

I/O repayments are where you just pay the monthly interest and you aren’t obligated to pay down the balance during that I/O period.⠀

So which one do you pick?⠀

Well, it depends on your situation and goals, right?!⠀

For example, take Steve. Steve wants to purchase a home to live in (PPOR). If Steve’s goal is only to purchase a home, it makes sense to reduce this home loan as quickly as possible. ⠀


Home loans provide no tax incentives because it is non-deductible debt. The quicker Steve pays this down, the quicker he can improve his own personal cash flow.⠀

This in turn will give him options, later on, to do whatever he wants when the loan is paid off…like more holidays or invest for his future.⠀

Another example, take Amy, she’s a property investor. Her goal is to accumulate a property portfolio. Based purely on these goals, it would help her to accumulate them faster by keeping her loans on I/O because she isn’t obligated to pay the principal down. ⠀


Cash flow is king and if she can reduce your out-goings, especially during the property accumulation phase, it will help her save faster for that next deposit.⠀

Pair these loans with offset accounts and Amy can reduce her repayments even more by putting savings in those accounts.⠀

Once the accumulation phase is complete, we can focus on contributing to the principle of her loans.⠀

Can’t decide which will help you reach your financial goals faster? Give us a call on 0417 29 27 80 and we discuss how structuring your loans will help you!

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