Home
Back
Interest Only Loan Formula:
| From: | To: |
An interest only home loan is a type of mortgage where for a set period, you only pay the interest on the amount borrowed, without reducing the principal balance. This results in lower initial payments but higher long-term costs.
The calculator uses the interest only loan formula:
Where:
Explanation: The formula calculates only the interest portion of a loan payment, which remains constant throughout the interest-only period as the principal doesn't decrease.
Details: Understanding your interest-only payments helps in financial planning, budgeting, and comparing different loan options. It's particularly important for investment properties or during periods of cash flow constraints.
Tips: Enter the principal amount in NZD and the annual interest rate as a percentage. Both values must be positive numbers.
Q1: What are the advantages of interest only loans?
A: Lower initial payments, improved cash flow, potential tax benefits for investment properties, and flexibility for those expecting future income increases.
Q2: What are the disadvantages of interest only loans?
A: Higher overall cost, no equity build-up during interest-only period, potential for payment shock when reverting to principal and interest payments.
Q3: How long do interest only periods typically last?
A: In New Zealand, interest-only periods typically range from 1-5 years, after which the loan reverts to principal and interest payments.
Q4: Are interest only loans suitable for first home buyers?
A: Generally not recommended as they don't build equity in the property. They're more commonly used by investors or those with irregular income.
Q5: Can I make extra payments during an interest only period?
A: This depends on your loan terms. Some lenders allow extra payments, while others may charge fees or restrict additional payments during the interest-only period.