Principal and interest compared to interest only

The overall property investment strategy for investors is to build equity through capital growth and to create an income stream from rental returns. The decision to use either an interest-only loan or a principal and interest loan will be influenced by the personal cash flows of the investor (as in what they can afford) as well as whether they have personal debt or not.

A principal and interest loan has higher loan repayments than an interest-only loan and will reduce surplus income to the investor. This option is unlikely to be the preference for the investor who has a tight budget or limited personal cash flows. However, as debt repayment is the same as buying property equity, making principal and interest loans (either the personal home loan or the investment debt) is the best way to increase net asset worth and leverage into more property.