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Interest Only Mortgage Formula:
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An interest-only mortgage is a loan where the borrower pays only the interest for a set period, typically 5-10 years, without reducing the principal balance. This results in lower monthly payments initially but requires higher payments later when principal repayment begins.
The calculator uses the interest-only mortgage formula:
Where:
Explanation: The formula calculates the monthly interest payment by converting the annual interest 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 higher payments when principal repayment begins. It's particularly relevant for investment properties and short-term financial strategies.
Tips: Enter the principal amount in NZD and the annual interest rate as a percentage. Both values must be positive numbers to calculate valid results.
Q1: What are the advantages of interest-only mortgages?
A: Lower initial monthly payments, improved cash flow, and potential tax benefits for investment properties.
Q2: What are the risks of interest-only mortgages?
A: Higher payments later, no equity buildup during interest-only period, and potential for negative equity if property values decline.
Q3: How long do interest-only periods typically last?
A: Usually 5-10 years, after which the loan converts to principal and interest payments.
Q4: Are interest-only mortgages common in New Zealand?
A: Yes, they are available from many lenders in NZ, particularly for investment properties and borrowers with strong financial positions.
Q5: Can I make extra payments during the interest-only period?
A: This depends on your specific loan terms. Some lenders allow extra payments, while others may have restrictions or fees.