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Interest Only Mortgage Formula:
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An interest-only mortgage is a type of loan where you only pay the interest portion of your mortgage for a set period, typically 5-10 years. This results in lower monthly payments initially, but the principal amount remains unchanged during the interest-only period.
The calculator uses the interest-only mortgage formula:
Where:
Explanation: This formula calculates the monthly interest payment by converting the annual interest rate to a monthly rate and applying it to the principal amount.
Details: Interest-only mortgages can provide lower initial payments, improved cash flow, and potential tax benefits for investment properties. They are particularly useful for investors or those with irregular income patterns.
Tips: Enter the principal amount in NZD and the annual interest rate as a percentage. Both values must be positive numbers to calculate the monthly interest-only payment.
Q1: What happens after the interest-only period ends?
A: After the interest-only period, your payments will increase significantly as you start paying both principal and interest, or you may need to refinance.
Q2: Are interest-only mortgages available in New Zealand?
A: Yes, many NZ lenders offer interest-only mortgages, particularly for investment properties and to borrowers with strong financial positions.
Q3: What are the risks of interest-only mortgages?
A: The main risk is that you're not paying down the principal, so you won't build equity during the interest-only period. Payments will also increase significantly afterward.
Q4: Who should consider an interest-only mortgage?
A: Property investors, those expecting future income increases, or borrowers who need lower payments temporarily may benefit from interest-only mortgages.
Q5: How long do interest-only periods typically last?
A: In New Zealand, interest-only periods typically range from 1-5 years, with some lenders offering up to 10 years for investment properties.