Interest-Only Mortgage Calculator

Work out your repayments on an interest only loan

How are interest-only home loans calculated?

An interest only calculator helps work out your repayments on an interest only basis. You can select interest only on both a fixed or standard variable rate loan. The difference between fixed and variable is that the variable interest only home loan can fluctuate from time to time which changes your repayment.

This calculator can only give you an indicative repayment because the actual repayments is based on the number of days in a month and the last business day for the month.

FAQs about this Calculator

  • How to use the interest-only home loan calculator?

    Here are the information you need to input into the calculator:

    • Loan amount
      The loan amount refers to the amount of money you have borrowed or the outstanding loan balance.

    • Interest rate
      The interest rate which can be either fixed or variable is the interest rate at which you repay the loan.

    • Loan term
      This is referring to the amount of time you have to repay the loan with usual loan term ranging from 25 to 30 years.

    • Repayment frequency
      Refers to how often you will be making your repayments and is typically either monthly, fortnightly or weekly.

    • Interest Only Period
      This refers to how long your interest only period is before it reverts to principal and interest. The interest only period typically range from 1 to 5 years.

    • Loan Fee
      Loan fee is a fee that you will have to pay throughout the life of your loan. These can be annual fees, service fees (monthly), or account-keeping fees.

    The result will not only provide you with your monthly repayment during the interest only period but also what your loan repayment would look like when it reverts to principal and interest.

    The repayments on principal and interest will depend on how long you have your interest only period for. This is because the longer you have an interest only period, the shorter time you have, to pay off your loan hence your loan repayments would be higher.

    Example
    If you have selected a 5-year interest only period then you will have 25 years to pay off your principal amount.

    The calculator can help you see how much money you free up with an interest-only loan and how much the principal and interest repayments are when it reverts after the interest only period expires. This allows you to have greater control over your mortgage repayment and cash flow.

  • Why would you have an interest-only home loan?

    If you are only servicing the interest and not paying off the principal, then how would an interest only home loan benefit you.

    This is determined by your goals and objectives. There are a few reasons why interest only is considered suitable

    1. Investment purpose
      Investors typically want to have their loans to be interest only to maximise their tax benefit (tax-deductible interest).

    2. Free up cash flow
      As you are only servicing the interest, it means your monthly repayments would be lower when comparing with principal and interest repayment.

    3. Other investment opportunities
      Lower repayments mean higher level of savings which investors can use for other investment opportunities.

    4. Paying off non-deductible debt
      Some borrowers have an owner-occupied debt that they wish to pay off first. Interest only loans will free up more cash flow allowing the borrower to redirect their surplus income to pay down their owner-occupied loan first.

    Whatever your reason is for taking out an interest-only loan, ensure you seek proper mortgage advice before applying.

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