Inflation-indexed loans are linked to inflation, meaning that the principal of the loan can increase early in the loan term. This leads to slower asset formation. While the principal may increase due to inflation, this does not necessarily mean that your financial position is worse, because real estate prices tend to follow inflation in the long term. Interest rates on indexed loans are generally low and debt service lower.
Non-indexed loans are not linked to inflation, meaning that the loan never increases, merely decreasing steadily over the loan term. This results in quicker asset formation and lower instalments as the loan term progresses. Interest rates on non-indexed loans are generally higher than on indexed loans and, as a result, debt service can be considerably higher in the beginning.