The cash flow case for IO
Interest-only repayments are lower, which can help an investor hold more property or direct spare cash into an offset against non-deductible home debt. For some portfolios that is the more tax-effective use of money; your accountant should confirm.
The costs
Investor IO rates are typically higher than P&I. You also build no equity through repayments, relying entirely on capital growth, and repayments step up when the IO period ends.
The serviceability effect
When a lender assesses your existing IO loans, many calculate repayments as P&I over the remaining term after the IO period. That can make IO loans look more expensive in servicing than P&I ones, reducing capacity for the next purchase.
Running the comparison
We model both options over five years: total interest, cash flow after tax, equity position and effect on borrowing power. The result often differs loan by loan within the same portfolio.
General information only. It does not consider your objectives, financial situation or needs. Speak with a licensed adviser and your accountant before acting. See our Disclaimer.
