Home
Back
Interest-Only EMI Formula:
| From: | To: |
An interest-only mortgage payment calculates the monthly payment that covers only the interest portion of the loan, without reducing the principal balance. This results in lower initial payments compared to traditional amortizing loans.
The calculator uses the interest-only formula:
Where:
Explanation: The formula multiplies the principal amount by the monthly interest rate to calculate the interest-only payment amount.
Details: Understanding interest-only payments helps borrowers assess short-term affordability and plan for future payment increases when the interest-only period ends and principal repayment begins.
Tips: Enter the principal amount in currency and the monthly interest rate as a decimal (e.g., 0.005 for 0.5%). Both values must be positive numbers.
Q1: What is an interest-only mortgage?
A: An interest-only mortgage is a loan where the borrower pays only the interest for a set period, after which they must start paying both principal and interest.
Q2: What are the advantages of interest-only payments?
A: Lower initial monthly payments, which can be beneficial for borrowers with irregular income or those expecting higher future earnings.
Q3: What are the risks of interest-only mortgages?
A: The principal balance doesn't decrease during the interest-only period, and payments will significantly increase when principal repayment begins.
Q4: How do I convert annual interest rate to monthly?
A: Divide the annual interest rate by 12. For example, 6% annual rate = 0.06/12 = 0.005 monthly rate.
Q5: Are interest-only mortgages suitable for everyone?
A: No, they are best for financially disciplined borrowers who have a clear plan for repaying the principal and understand the risks involved.