3 types of investment property loans you should know about

Interest-only loans

Interest-only loans are the most common type of investment property loan in Australia. They only require you to pay interest on the amount you borrow.

Pros

• Your regular loan repayments will be lower because you are only paying interest. This will increase your cash flow.  
• You will maximise your tax-deductible interest expense on your investment property.

Cons

• You don’t build any equity with your regular interest repayments. However, you can build equity by your property increasing in value over time.
• If, in the unlikely event that your property decreases in value, you can end up owing more than you borrowed. However, Australian property prices in strategic locations have a long-term record of growth.
• Interest-only loans are usually only available for 5-year terms. After that period, you either need to take out another interest-free loan, or a principal and interest loan, or an equity loan.