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Interest Only EMI Formula:
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Interest only mortgage repayment is a type of loan where the borrower pays only the interest portion of the loan for a specified period, without reducing the principal balance. This results in lower monthly payments initially.
The calculator uses the interest only EMI formula:
Where:
Explanation: The formula calculates the monthly interest payment by converting the annual rate to a monthly rate and applying it to the principal amount.
Details: Understanding interest-only payments helps borrowers plan their finances during the interest-only period and prepare for when principal payments begin. It's particularly useful for investment properties or short-term financing strategies.
Tips: Enter the principal loan amount in your currency and the annual interest rate as a percentage. All values must be valid (principal > 0, rate > 0).
Q1: What is the main advantage of interest-only mortgages?
A: The main advantage is lower monthly payments during the interest-only period, which can help with cash flow management.
Q2: How long do interest-only periods typically last?
A: Interest-only periods typically range from 5-10 years, after which the loan converts to a principal and interest repayment structure.
Q3: Are interest-only mortgages riskier than traditional mortgages?
A: They can be riskier as the principal balance doesn't decrease during the interest-only period, and borrowers may face payment shock when principal payments begin.
Q4: Who typically uses interest-only mortgages?
A: They are often used by real estate investors, borrowers with irregular income, or those who expect significant future income increases.
Q5: What happens at the end of the interest-only period?
A: At the end of the interest-only period, borrowers must begin paying both principal and interest, which results in higher monthly payments, or they may need to refinance the loan.