1. What is an Interest Only Mortgage?

An interest-only mortgage is a type of loan where the borrower pays only the interest for a set period, typically 5-10 years. After this period, the borrower must either repay the principal in full or convert to a repayment mortgage.

2. How Does the Calculator Work?

The calculator uses the interest-only mortgage formula:

Where:

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

Explanation: This formula calculates only the interest portion of the mortgage payment, not reducing the principal balance.

3. Understanding Interest Only Payments

Details: Interest-only mortgages typically have lower initial payments than repayment mortgages, but the principal balance remains unchanged during the interest-only period.

4. Using the Calculator

Tips: Enter the principal amount in currency units and the 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 payments, potentially better cash flow, and opportunity to invest the difference elsewhere.

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

Q3: Who typically uses interest-only mortgages?
A: Often used by investors, those with irregular income, or borrowers who expect significant future income increases.

Q4: How long do interest-only periods typically last?
A: Usually 5-10 years, after which the loan must be repaid or converted to a repayment mortgage.

Q5: Are there additional fees with interest-only mortgages?
A: Some lenders may charge higher interest rates or additional fees for interest-only products compared to repayment mortgages.