Principal & Interest (P&I) vs. Interest Only (IO)

This refers to how you pay back your bank. P&I loans reduce your debt over time, while IO loans only cover the interest, leaving the original debt amount untouched.

Key Concepts

• Principal & Interest: Your monthly payment covers the interest plus a small bit of the loan balance. Over 30 years, you will eventually own the home outright.
• Interest Only: Your payments are lower because you aren't paying back the debt—just the "rent" on the money. This is common for investors wanting to maximize cash flow or tax deductions.

The Long-Term Math

While Interest Only feels cheaper month-to-month, you pay significantly more interest over the life of the loan because the balance never drops.

$$Total Cost = (Monthly Payment \times Number of Months) + Original Principal$$

Why Investors Choose IO

Investors often use Interest Only periods (usually 1–5 years) to keep expenses low while they focus on paying down the debt on their own home (non-deductible debt) first.

Pro Tip

PropKeeper helps you track your "Net Position." If you are on an Interest Only loan, make sure you are using an Offset Account to build up cash. This gives you the flexibility of a low payment with the benefit of reduced interest.