Home
Back
Interest Only Mortgage Formula:
| From: | To: |
An interest-only mortgage is a type of loan where the borrower pays only the interest for a set period, typically 5-10 years, before starting to pay down the principal. This results in lower initial payments but requires larger payments later.
The calculator uses the interest-only mortgage formula:
Where:
Explanation: The formula calculates the monthly interest payment based on the principal amount and annual interest rate, dividing by 12 to get the monthly amount.
Details: Understanding interest-only payments helps borrowers plan their finances during the interest-only period and prepare for the transition to full principal and interest payments.
Tips: Enter the principal amount in currency units and the annual interest rate as a percentage. Both values must be positive numbers.
Q1: What are the advantages of interest-only mortgages?
A: Lower initial payments, potential tax benefits (consult a tax advisor), and flexibility for those expecting higher future income.
Q2: What are the risks of interest-only mortgages?
A: No equity build-up during interest-only period, potential for payment shock when principal payments begin, 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 buyers who expect significant income growth or plan to sell before the interest-only period ends.
Q4: How long do interest-only periods typically last?
A: Usually 5-10 years, after which the loan converts to a standard amortizing mortgage with higher payments.
Q5: Does Santander offer interest-only mortgages?
A: Santander's mortgage products may vary by region and time. Contact Santander directly for current interest-only mortgage offerings and eligibility requirements.