Interest Only Repayments
What is an interest only repayment?
When you’re searching for a suitable loan type, there are two to choose from when it comes to repayments:
- Principal and Interest. When you choose a loan type that has principal and interest repayments, your repayments will be made up of both the principal amount you borrowed, and the interest your bank or lender is charging you.
- Interest Only. An interest only mortgage is one where you repay only the interest you’re charged, usually over a period of up to 10 years.
To calculate interest only repayments, you’ll need to choose from any of our interest only loan options and run it through a mortgage calculator, such as the Mortgage Repayment Calculator below. That can help you get the information you need and can also give you an idea of what you can afford. Home loan calculators are a great way to find out a range of information about all kinds of loans and both kinds of repayment options. To calculate interest only repayments further, you’ll also need to choose from one of the two kinds of interest rate loan types:
- Variable. With a variable rate home loan, the interest rate can increase or decrease over the life of the loan, depending on a range of national and international influences.
- Fixed. With fixed interest rates, the amount you are charged in interest each week, month or fortnight will stay the same for an agreed period, usually between 1 and 5 years.
All banks and lenders are required by law to advertise a Comparison Rate alongside the headline rate. This can be a handy way to calculate interest only repayments over the life of the loan. A Comparison Rate is a way to compare home loans and take into account any fees and charges and terms and conditions that may be applied over the life of the loan. You can use a Comparison Rate whether you want to calculate interest only repayments or principal and interest monthly repayments.
What are the pros and cons of interest only repayments?
An interest only mortgage can be a great way to get into the property market, especially if you want to invest. The idea behind using an interest only mortgage instead of a principal and interest repayment home loan is that you only pay back the minimum amount, over the agreed period. Ideally under that plan, you will sell the property for a profit before the end of the interest only period, and avoid a large increase in repayments when you have to start paying both the principal and interest amounts in repayments. Like all home loans, there are advantages and disadvantages to an interest only mortgages:
- Cash Flow. Interest only monthly repayments allow you to free up cash for whatever you want. It may even help you pay for moving costs or any renovations you want to do on the property.
- Start investing. An Interest only mortgage can help you start investing in real estate on a modest budget.
- Opportunity. An interest only mortgage gives you the chance to buy your perfect property if it unexpectedly comes onto the market, without having to outlay too much money in repayments.
- Repayment increase. After the interest only period, you may have to start paying back the principal amount of your home loan. That means there will be a substantial increase in your repayment amounts.
- Little equity. When you calculate interest only repayments, you’ll notice that you’re paying back very little, if any, of your principal amount. That means that over the interest only period you’re accumulating little equity.
How to calculate interest only loan repayments?
Being able to calculate interest only repayments on a suitable home loan before you even apply is one of the great things about the modern mortgage market. At Mortgage House we have mortgage calculator options and other resources and tools that give you a raft of information and general advice. To calculate interest only repayments, whether they are weekly, fortnightly or monthly repayments, is the place to start. It acts like your own personal loan repayment calculator and all you have to do is enter the details of the mortgage you think is suitable. Those details include the interest rate, life of the loan, loan amount and whether or not the interest rate is an introductory rate. Introductory rates are rates that are lower for a set period, but increase once that period is over. A key part of a mortgage calculator such as this one is to look at the difference between an interest only mortgage and a principal and interest mortgage. Also, make sure you have the agreed interest only loan period correct.
Mortgage Repayment Calculator
Important Disclaimer: This is intended as a guide only. Details of terms and conditions, interest rates, fees and charges are available upon application. Mortgage House’s prevailing credit criteria apply. Please note that your actual fortnightly repayment would be equal to the monthly repayment amount divided by two. Weekly repayments would equal the monthly repayment amount divided by four. If you choose to pay fortnightly or weekly, your actual repayments will be higher than repayments shown on this page. You can reduce the term of your loan if you choose to make repayments fortnightly or weekly. We recommend you seek independent legal and financial advice before proceeding with any loan.
What you’ll discover with this mortgage calculator is it will calculate interest only repayments for the agreed period, but it will also tell you how much interest you will pay in total over the agreed period.
How much will my interest only repayments be?
As mentioned above, a mortgage calculator can give you a lot of information when you need to calculate interest only repayments. How much those repayments are will depend on the loan amount, the life of the loan (agreed period) and the interest rate. You can easily change all those things in the Mortgage Repayment Calculator above to help you calculate interest only repayments. If you’re interested in finding out how much you may be able to borrow, then a Borrowing Calculator is worth a look. It will show you what your borrowing power is, which is an indication of what you may be able to borrow from a bank or lender. It is not a pre or conditional approval, but it is a good guide and can help you narrow down or increase your property search. It can also help you calculate interest only repayments, so you have an idea in your head whether or not you can afford the repayments. As well as telling you how much you may be able to borrow, it will give you a monthly repayment figure. Even though that figure is for principal and interest repayments, you can take the borrowing power amount over into a Mortgage Repayment Calculator to help with your planning.
Important Disclaimer: This is intended as a guide only. Details of terms and conditions, interest rates, fees and charges are available upon application. Mortgage House's prevailing credit criteria apply. We recommend you seek independent legal and financial advice before proceeding with any loan. The Comparison Rate for each of the home loan products contained in this page is based on a loan of $150,000 over a 25 year term. Fees and charges may be payable.
WARNING: The comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. * This mortgage calculator shows indicative repayments based on 12/26/52 equal repayments for monthly/fortnightly/weekly options.
An important thing to remember when you calculate interest only repayments is that if you hang onto your interest only mortgage for longer than the interest only agreed period, there is likely to be a substantial increase in the monthly repayment figure. That is because you will now be repaying both the principal and interest amounts. What this means is you will have to be aware of the change and budget accordingly.