Commercial Property Loan Calculator
Model commercial loan structures. Compare how Principal & Interest (P&I) vs Interest-Only (IO) affects your monthly cash flow and total debt reduction.
Loan Details
* Reduces interest charged
Structure A
Principal & Interest
Structure B
Interest Only
Monthly Cashflow Benefit
$0 extra per month
By choosing Interest Only instead of P&I
The Investor's Dilemma
Commercial investors often prefer Interest Only to maximise net monthly cash flow and tax deductibility. However, P&I structures allow you to build equity and theoretically reach a 'debt-free' status. Choosing between them depends on your growth vs yield objectives.
P&I vs Interest Only: Which is better?
Principal & Interest (P&I)
- 01.Debt Reduction: Every payment reduces your loan balance, increasing your true ownership (equity) over time.
- 02.Lower Interest Cost: Over the life of the loan, you pay significantly less total interest because the principal is shrinking.
- 03.Forced Savings: It acts as a forced savings plan, ensuring you have a debt-free asset at the end of the term.
Interest Only (IO)
- 01.Maximise Cash Flow: Lowest possible monthly payment, leaving more cash in your pocket for other investments or expenses.
- 02.Higher Tax Deductions: In Australia, only interest is tax-deductible. IO keeps the deductible balance high for longer.
- 02.Portfolio Growth: Many investors use IO to maintain higher cash reserves, allowing them to deposit on their next property sooner.
Total Cost Comparison
Over a 0 year term at 0%:
Note: IO total cost assumes no principal reduction occurs for the entire term.
Key Takeaway
"Choosing Interest Only costs more in total interest over time, but it significantly improves your immediate serviceability and cash flow. For high-growth investors, the cash retained often generates a higher return elsewhere than the interest cost saved by paying down principal."