Interest-Only Loan (IO)
Repayments cover interest only, not principal. Common for investors.
What is IO?
An interest-only (IO) loan has repayments that cover only the interest charge, not the principal balance. Typical IO periods are 1 to 5 years, sometimes 10 for investors. At the end of IO, the loan reverts to principal-and-interest with higher repayments over a shorter remaining term.
Why it matters for you
IO works strategically for investment properties (maximising tax-deductible interest) and during tight cash flow periods (new builds, maternity leave). Rates are usually slightly higher than P&I. Poorly used, IO creates payment shock at reversion — plan for it.