There are only 2 options when it comes to repayment types, they are Principal and Interest Payments, known as P&I or Interest Only payments.
Option 1: Principal & Interest Repayments (P&I)
The Principal portion is the money going towards paying off the debt. The interest is the money being paid to the provider for lending the money, otherwise known as the cost of using someone else’s money. Loan Repayment Calculator
Option 2: Interest Only Payments (I/O)
By paying the Interest Only, you are not reducing the principal amount. Thus, the monthly loan payment is less because there is no principal portion included in the repayment.
Most Lenders will offer an initial 5-year Interest Only term before you are expected to commence making principal payments. This means, after the initial 5-year Interest Only term has expired, the monthly repayment will convert to P&I.
Consequently, once the Interest Only term expires and the loan convert to P&I the repayments will be higher as the remaining loan term to reduce the principal is only 25 years.
Interest Only terms suit most property investors or are a means of reducing your outgoings if your financial circumstances have changed and you need ease your monthly commitments. Loan Repayment Calculator
Loans with P&I repayments attract a lower interest rate than Interest Only loans Lenders charge a loading to the interest rate when it is Interest Only. In some circumstances the cost difference makes it completely impractical to choose an Interest Only loan.
Before taking out an Interest Only loan, it is recommended that you consult with your Accountant or Financial Adviser to ensure the repayment type is suitable for your goals and objectives.
In our opinion it is always advisable to being paying off the debt.