principle &interest versus interest only



From: Gary Hunt

I am going through the motions of purchasing my first investment property. The dilemma I have is whether to finance my property with an interest only loan or a principle and interest loan.
I have paid off my mortgage so I don’t have any other financial commitments and I earn a pretty good wage.
I have sought advice from a number of people who have espoused the virtues of both loan types. My tax agent recommends the P&I loan.
Can anyone offer any additional advice? Perhaps advantages/disadvantages of these loan types?

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Reply: 1
From: Dionysus888 .

Have a read of the discussion titled 'My first IP. Yippeeee' on the 28 Aug 02.
Interest only will give you a greater tax deduction and free up more money to invest elsewhere. Parking any extra cash in an offset account will reduce the interest charged and still leave the funds available for easy accessibility in the future. But the final thing to consider is what do you feel comfortable with.


You're not drunk if you can lie on the floor without holding on. ... Dean Martin
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Reply: 1.1
From: Richard Hunt


A simple change in mind-set and your "dilemma" in fact becomes an "opportunity". You see, you don't need to choose between these loan types, you can have them both if you prefer. How?

Choose an interest-only loan with an offset a/c attached. That way you give yourself the choice of being able to service an interest only loan, or should you choose to deposit additional funds in the offset a/c, the equivalent of a P&I loan.

You also get the additional flexibility of being able to utilise the cash funds in the offset a/c without affecting the tax deductibility of the original loan, something you won't get with the P&I loan.

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