The lowest interest rate is always ideal, but emoney can guide you through what other features to look for when deciding which loan is best for your investment needs.

Interest Only (IO) – A home loan repayment typically consists of two parts:

• The principal component – the amount you borrow (your loan balance)
• The interest component – the amount the lender charges on your outstanding balance

With an Interest Only home loan, your minimum repayments will only cover the interest charges on your loan for an agreed period of time. This means your loan balance won’t reduce during the interest-only period, since you are not making any principal repayments. Interest rates for Interest Only home loans tend to be higher than Principal & Interest home loans (where your payments cover both the principal and the interest).

Principal & Interest (P&I) – The interest rate on P&I loans for investors is higher than it is for owner-occupiers, but lower than IO investment loans. With a P&I loan you start reducing the principal immediately. While your repayments may be higher with a P&I loan, you are paying off the principal and ultimately saving on interest repayment.

Line of Credit – A line of credit loan, gives you access to the equity in your property. You can draw, pay back and redraw the funds as many times as you like for various purposes. It can help you counter any shortfalls in rental payments over the term of your investment as well as give you access to funds to purchase your next property investment. Just remember to keep track of the funds you withdraw so you stay on top of the tax deductibility of your interest repayments.