Interest Only (IO) Loan

Repayment of the loan principal is deferred for an agreed period. During this time, the borrower only pays the interest charges which means a lower minimum payment.

IO loans are often preferred by investors because they enable the borrower to purchase a more expensive property for greater returns (e.g. 10% capital growth on $500,000 is greater than 10% on $400,000).  However, using an IO loan is an aggressive strategy whereby investors risk that the property may not increase in value, or may in fact decrease.