Pay Less, Invest Faster: Why Smart Investors Go Interest-Only Mortgages

If you're looking to grow a successful property portfolio, it's important to understand the benefits of interest-only mortgages.

There’s endless debate in investment circles about the best way to structure your mortgage repayments, the option between principal and interest, or interest-only is a key decision to make. And yet, very few people can actually give you a straight answer.

The truth? It's quite simple.

We’re talking investment property strategy here, not your personal home loan. And we’re asking the real question: Do you want to pay off your mortgage faster… or invest again sooner?

Because the simple fact is, paying less now can mean building wealth faster.

Let’s dive into how.

The Two Mortgage Structures You Can Choose From:

1. Principal & Interest (P&I)
   

2. Interest-Only (IO)
   

Principal & Interest means you’re paying off the interest plus a portion of the loan principal every month. This is called amortisation.

Over time, you’ll own more of the house and pay less interest, but the repayment amounts stay roughly the same.

You can see that on the graph below, the payment amount stays at $3,000 over 30 years, but the proportion of interest versus principal changes over that time. At the start, you pay more interest on your $3,000, and by the end, that $3,000 is almost entirely going towards the principal of the mortgage.

Amortisation schedule for a property with $3,000 monthly repayments

Interest-Only, as the name suggests, means you’re just covering the interest for a period (usually 5 years), and not paying down the principal.

Note, at the time of writing this, ANZ has just come out with a 10-year interest-only mortgage for investors. You can read about it here.

So, which is better for investors? Let’s challenge a common myth.

Myth: Paying Down Debt Increases Property Value

Nope.

Property value is determined by the market, not by how much you’ve paid off.

Example:

• You buy a rental for $600k
  

• You get 100% lending, so your mortgage is $600k
  

• Over 10 years, you aggressively pay it down to $300k
  

• The property value doubles, and you sell it for $1.2 million

This example can be seen in the image below.

What’s your profit?

Paying down the debt on an investment property doesn't increase the value; therefore, your profit doesn't increase

It’s not $900k.

It’s $600k. Because profit = sell price – purchase price.

The debt repayments are just a return of your own capital, not a return on capital.

So Why Go Interest-Only?

Simple: Lower monthly payments = faster portfolio growth.

Let’s say you have a $500,000 mortgage at a 4% interest rate:

• Interest-Only: $1,667/month
  

• Principal & Interest: $2,387/month
  

That’s a $720/month difference. $8,640/year in freed-up cash.

That’s capital you could be:

• Putting into your own home loan to boost usable equity
  

• Saving for your next deposit
  

• Used to build liquidity and investment capacity
  

Interest-only doesn’t slow your wealth-building. It supercharges it.

Real-World Example: Who Should Use What?

Case A – The Growth Investor.

You’re 30, on a strong income, and investing for the long game. You don’t need the debt gone tomorrow; you need more properties under your belt. Interest-only loans give you the breathing room to grow your portfolio, then sell down and freehold later in life. That’s leverage done right.

Case B – The Pre-Retiree.

You’re 60 and want to retire in 5 years. You’re not aiming to build a 10-property portfolio; you’re aiming for stability. In this case, principal and interest might be smarter: pay it down aggressively, and retire with a freehold asset that generates cash flow. Different stage, different plan.

You can read more about these scenarios and more on our guide to property investment by clicking here.

The Bottom Line

Interest-only loans let you pay less now and invest faster. They give you flexibility, higher cash flow, and the ability to scale.

Yes, they’re not right for everyone. But for investors in the growth phase? They can be the difference between buying one property… or five.

Want to know what structure suits your strategy best? Talk to an expert advisor and build a plan that aligns with your goals, not just your mortgage payments.

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