See how interest-only loans are calculated with our interest-only mortgage calculator
This interest-only calculator helps determine if an interest-only home loan is a good fit for you. An interest-only loan is an attractive mortgage for borrowers who are looking to purchase a more expensive property or want to make smaller payments at the beginning of their loan. Aside from lower initial monthly payments, an interest-only loan still gives you the flexibility to make principal payments on your schedule. However, this is not without drawbacks. To get a clearer picture of how much you’ll pay at the beginning of your loan, enter loan details such as loan amount, interest rate, loan term, repayment frequency, length of the interest-only period, and any loan fees in the Interest-Only Mortgage Calculator.
The downsides associated with interest-only loans are larger payments at the end of your interest-only period since you are paying off the principal in a shorter time. For unprepared borrowers, this may mean future monthly payments that may be harder to afford. Rateseeker’s calculator works out the loan repayment amount due after it reverts to principal plus interest payments.
Our mortgage specialists can help you better understand the pros and cons of an interest-only loan. Get expert advice by getting in touch with Rateseeker today.
Compare loans with our interest-only mortgage payment calculator
Our calculator borrowers make informed decisions about their home financing. Whether it’s your first home or your third investment home, our calculators help you determine how much you can borrow, pay and save as well as compare loan products to see which one better fits your financial capacity. Our calculators such as the mortgage repayment calculator interest only are a good starting point for anyone trying to find a home loan appropriate to their needs.
After the Australian Prudential Regulation Authority (APRA) enforced restrictions on interest-only home loan lending in 2017, interest-only loans became less popular but are still offered by lenders but with more caution. While interest-only mortgages aren’t for everyone, lenders may be willing to write interest-only loans to borrowers with a great credit score, low debt-to-income ratio and can provide a large down payment.
If you fit the criteria or are in a unique circumstance where an interest-only loan may be the right fit, Rateseeker can help. Our mortgage specialists match borrowers with great home loans by comparing loan products from the top banks and lenders in Australia. Call us to discuss your options today, or fill out the form and we’ll get back to you in 24 hours.
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.
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
- Investment purpose
Investors typically want to have their loans to be interest only to maximise their tax benefit (tax-deductible interest).
- 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.
- Other investment opportunities
Lower repayments mean higher level of savings which investors can use for other investment opportunities.
- 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.