Overview
Principal and interest (P & I) investment loans require borrowers to make regular payments that cover both the interest charged on the loan and a portion of the principal amount borrowed. This means that over the term of the loan, the borrower gradually reduces the outstanding balance owed. P & I loans are a common choice for property investors who seek to build equity in their investment property over time while also repaying the loan.
Advantages of P & I investment loans
Equity Building: Regular repayments of both principal and interest gradually reduce the outstanding loan balance, allowing investors to build equity in their investment property over time.
Reduced Total Interest Costs: Unlike interest-only loans, where the principal amount remains unchanged, P & I loans result in lower total interest costs over the life of the loan because the outstanding balance decreases with each repayment.
Ownership Sooner: With each payment, investors move closer to full ownership of the investment property, providing a sense of security and long-term financial stability.
Potential for Faster Loan Repayment: As the principal amount decreases over time, investors may have the option to make additional repayments or refinance to a shorter loan term, potentially paying off the loan sooner and saving on interest costs.
Stable Repayment Structure: P & I loans offer a stable repayment structure, with consistent payments over the term of the loan, making budgeting and financial planning more predictable for investors.
Lower Risk: By gradually reducing the loan balance, P & I loans may carry lower overall risk compared to interest-only loans, as investors steadily build equity in their investment property.
These advantages highlight why P & I investment loans are a popular choice among property investors seeking to build long-term wealth and financial security through property investment.
