Principal & Interest (P&I)
Finance & Loans
A loan repayment structure where each payment reduces both the loan balance (principal) and the interest charged.
Full Explanation
With a principal and interest loan, your regular repayments cover the interest cost plus a portion that reduces the outstanding loan balance. Over time, the principal component grows and the interest component shrinks. This means you build equity faster but have higher monthly repayments compared to interest-only loans. Most investment loans revert to P&I after an initial interest-only period.
Example
On a $500,000 loan at 6%, monthly P&I repayments are approximately $3,000 — with about $2,500 going to interest and $500 reducing the principal in year one.
Frequently Asked Questions
Is P&I or interest-only better for investment properties?
Interest-only is often preferred during the holding phase as it maximises cash flow and keeps deductible interest high. P&I builds equity faster but reduces your tax deduction. The best choice depends on your strategy and cash flow needs.