GHFS News

What are Principal & Interest and Interest Only Repayments?

by Greg Hearn

Let’s break down Interest-Only (IO) vs. Principal and Interest (P&I) home loan repayments into something easy to understand and, dare we say, fun! Imagine your home loan is a pizza – stay with me here.

With Interest-Only repayments, you’re only paying for the toppings (the interest) while the base (the loan principal) stays the same. It’s cheaper for a while, but you’re not getting through the whole pizza. This works for people like investors looking to save money short-term or who plan to sell the property before munching on the base (repaying the loan principal). But once the interest-only phase ends, those repayments will jump, and the toppings won’t get cheaper.

On the flip side, Principal and Interest repayments tackle both the toppings and the base in each bite. Sure, the slices (monthly payments) are a bit bigger, but you’ll eventually finish the whole pizza (own your home outright), and you’ll pay less for it overall because you’re chipping away at the loan balance.

So, which “slice” of the loan life is for you? Interest-Only gives short-term flexibility but with risks – like higher repayments later and no equity growth unless property values rise. Principal and Interest is your steady and reliable option, where you’re always reducing your debt.

If the pizza analogy has you scratching your head (or craving dinner), don’t worry – that’s where we come in! As mortgage brokers, we’ll help you decide which repayment plan fits your financial appetite. 

Got a finance question for our Q&A? Drop it in the comments below! ⬇️

Greg Hearn

Greg Hearn

Principal Greg Hearn, an award-winning professional with over 30 years of experience working for and with many of Australia’s largest banks and finance lenders providing residential, commercial as well as plant & equipment finance.

Ready to talk?

Schedule a ZOOM Meeting with Greg