1. What is Interest Only Mortgage?

An interest-only mortgage is a type of loan where the borrower pays only the interest for a certain period, typically 5-10 years. After this period, the borrower must start paying both principal and interest, or repay the entire principal amount.

2. How Does the Calculator Work?

The calculator uses the interest-only mortgage formula:

Where:

• \( P \) — Principal amount (currency units)
• \( R \) — Annual interest rate (%)

Explanation: This formula calculates the monthly interest payment only, without reducing the principal balance.

3. Importance of Interest Only Calculation

Details: Understanding interest-only payments helps borrowers plan their finances during the interest-only period and prepare for higher payments when principal repayment begins.

4. Using the Calculator

Tips: Enter the principal amount in currency units and annual interest rate as a percentage. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What are the advantages of interest-only mortgages?
A: Lower initial monthly payments, potentially better cash flow management, and opportunity to invest the savings elsewhere.

Q2: What are the risks of interest-only mortgages?
A: Principal balance doesn't decrease during interest-only period, potential for payment shock when principal repayment begins, and risk of negative equity if property values decline.

Q3: Who typically uses interest-only mortgages?
A: Often used by investors expecting property appreciation, those with irregular income patterns, or borrowers who plan to sell the property before the interest-only period ends.

Q4: How long do interest-only periods typically last?
A: Most interest-only periods range from 5-10 years, after which the loan converts to a standard amortizing mortgage.

Q5: Are interest-only mortgages regulated differently?
A: Yes, many countries have stricter regulations for interest-only mortgages due to the higher risks involved for both borrowers and lenders.