1. What is Interest Only Loan Payment?

Interest only loans allow borrowers to pay only the interest portion of the loan for a specified period, keeping monthly payments lower initially. This is common in Commonwealth Bank (Australia) investment and some home loans.

2. How Does the Calculator Work?

The calculator uses the interest only payment formula:

Where:

• \( P \) — Principal loan amount (AUD)
• \( R \) — Monthly interest rate (decimal)
• \( EMI \) — Monthly interest-only payment (AUD)

Explanation: The calculation multiplies the principal amount by the monthly interest rate to determine the interest-only payment amount.

3. Importance of Interest Only Calculation

Details: Understanding interest-only payments helps borrowers plan their cash flow, especially during the initial period of a loan when only interest is being paid.

4. Using the Calculator

Tips: Enter the principal amount in AUD and the monthly interest rate as a decimal (e.g., 0.005 for 0.5%). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is an interest-only period?
A: This is a specified time during a loan term where the borrower pays only the interest, not reducing the principal balance.

Q2: How do I convert annual rate to monthly?
A: Divide the annual interest rate by 12. For example, 6% annual = 0.06/12 = 0.005 monthly rate.

Q3: Are there risks with interest-only loans?
A: Yes, after the interest-only period ends, payments increase significantly as you start paying both principal and interest.

Q4: Does CommBank offer interest-only loans?
A: Yes, Commonwealth Bank offers interest-only options for investment loans and some owner-occupier loans, typically for up to 5 years.

Q5: What happens after the interest-only period?
A: The loan reverts to principal and interest payments, which will be higher than the interest-only payments.