Home
Back
Interest Only Loan Formula:
| From: | To: |
The Interest Only Loan Calculator using MoneySmart's method calculates the monthly interest-only payment for loans. It helps borrowers understand their monthly interest obligations during the interest-only period of a loan.
The calculator uses the MoneySmart formula:
Where:
Explanation: This calculation determines only the interest portion of the loan payment, excluding any principal repayment during the interest-only period.
Details: Understanding interest-only payments is crucial for budgeting during the initial period of a loan, particularly for investment properties or business loans where cash flow management is important.
Tips: Enter the principal amount in AUD and the annual interest rate as a percentage. Both values must be positive numbers to calculate the monthly interest-only payment.
Q1: What is an interest-only loan?
A: An interest-only loan requires the borrower to pay only the interest portion of the loan for a specified period, after which principal repayments begin.
Q2: How long do interest-only periods typically last?
A: Interest-only periods typically range from 1-5 years for residential mortgages and can be longer for commercial loans, depending on the lender and loan terms.
Q3: What happens after the interest-only period ends?
A: After the interest-only period, the loan reverts to principal and interest payments, which will be higher as you now need to repay both interest and principal.
Q4: Are interest-only loans suitable for everyone?
A: Interest-only loans are best suited for investors, those with irregular income, or borrowers who expect their financial situation to improve before principal repayments begin.
Q5: What are the risks of interest-only loans?
A: The main risks include higher payments after the interest-only period ends, no equity buildup during the interest-only period, and potential negative equity if property values decline.