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Interest Only Mortgage Calculator

 Use our Interest Only Mortgage Calculator to find out what your monthly mortgage payment would be by taking factoring in your interest-only loan term, interest rate and loan amount.  

The result is your estimated interest-only mortgage payment for the interest-only period.

An Interest-Only Mortgage is a loan with monthly payments only on the interest of the amount borrowed for an initial term at a fixed interest rate.

How To Calculate Your Interest Only Mortgage

In order to give you accurate results, we need the following data:

  • Loan amount – how much money was loaned to you by the bank or a lender?
  • Interest Rate – what is your agreed interest rate for the loan?
  • Loan term – how long will you repay the loan
  • Repayment Frequency – how often are you paying in a monthly basis
  • Interest Only Period – this refers to a specific time frame during which you intend or are required to pay the interest on a loan, without having to make any principal payments.
  • Loan Fee – A loan fee is a fee charged by a lender for processing a loan application and/or for providing the borrower with a loan. Loan fees can take many different forms, including origination fees, application fees, appraisal fees, credit check fees, and others.

 

The practice of utilising interest-only payments for home loans is quite Common in Australia with almost 30% of borrowers choosing this option. These interest-only payments are primarily linked to investment loans, which enable borrowers to decrease their cash flow expenses on holding an investment property, and focus on paying off their non-deductible personal debts like car loans, home loans for their residences etc.

It’s crucial to maintain a balance between the flexibility of interest-only repayments during the initial period and the elevated principal and interest repayments that follow afterwards. It is advisable to carefully calculate the cash flow disparity between the two, to avoid facing financial strain in the future.

When Is Interest Only Mortgage Used?

Interest-only mortgages are typically used by borrowers who want to lower their monthly mortgage payments during the early years of the loan. These mortgages allow the borrower to make interest-only payments for a specified period, usually between 5 and 10 years, before principal payments become due.

Interest-only mortgages are often used by borrowers who expect their income to increase over time or who anticipate a large influx of cash in the future, such as an inheritance or bonus payment. Borrowers may also choose an interest-only mortgage if they plan to sell the property before the principal payments become due.

Advantages of Interest Only Mortgage

The main advantage of an interest-only mortgage is that it can provide lower monthly mortgage payments during the early years of the loan, which can help borrowers with cash flow management. Some other potential advantages of an interest-only mortgage may include:

Flexibility: Interest-only mortgages can offer greater flexibility for borrowers, as they may be able to invest the money they save on mortgage payments into other assets or investments that may offer higher returns.

Lower initial payments: With interest-only mortgages, borrowers only need to make payments on the interest for a period of time, which means that their initial payments may be significantly lower than they would be with a traditional mortgage.

Tax benefits: In some cases, the interest paid on a mortgage may be tax-deductible, which can help reduce the borrower’s overall tax liability. Advisable to speak to your accountant.

Opportunity to pay down other debt: By having lower mortgage payments, borrowers may be able to pay down other high-interest debts or invest in other assets that may offer higher returns.

Need Assistance?

Are you seeking assistance in understanding the repayment amounts for an interest-only home loan? Contact one of our Excellence Finance mortgage broker

Disclaimer: This calculator’s results are an estimate only and do not account for all costs and fees. Borrowers should consult with a qualified Australian Credit Licensee or Authorised Credit Representative regarding their individual financial circumstances as interest rates and other costs may fluctuate over time, affecting the overall cost of the loan.

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