Work out your repayments before and after the interest-only period
Page reading time: 2 minutes
This calculator helps you work out:
- the repayments before and after the interest-only period
- the total cost of an interest-only mortgage
- how much more you will pay with an interest-only mortgage compared to a principal and interest loan
Results
'; $(".result-box").html(a); $(".result").show(); var b = MSCalc.toFloat($("#pv").val()) , c = MSCalc.toFloat($("#rate").val()) / 100 , d = MSCalc.toFloat($("#pmtFreq").val()) , e = MSCalc.toFloat($("#nper").val()) , f = e; e *= d; var g = MSCalc.toFloat($("#ioNper").val()) , h = g , i = f - h; g *= d; var j = MSCalc.toFloat($("#fee").val()) , k = MSCalc.toFloat($("#feeFreq").val()) , l = 0; j = j * k / d; var m = b * c / d + j; 0 === g && (m = 0); for (var n = MSCalc.PMT(c / d, e - g, -b, l, 0) + j, o = MSCalc.PMT(c / d, e, -b, l, 0) + j, p = m * g + n * (e - g), q = o * e, r = p - q, s = $("#pmtFreq option:selected").text(), t = [0], u = [0], v = 1; v <= e / d; v++) v <= h ? t.push(m) : t.push(n), u.push(o); new Highcharts.Chart({ chart: { renderTo: "chart", type: "column", height: 400 }, colors: ["#0047F5", "#42BFC7"], credits: { enabled: !1 }, legend: { enabled: !1 }, title: { text: null }, xAxis: { min: 1, title: { text: "Years" }, allowDecimals: !1 }, yAxis: { title: { text: s + " repayments" }, endOnTick: !1 }, plotOptions: { column: { stacking: "normal", dataLabels: { enabled: !1 } }, series: { borderWidth: 0, borderColor: "#8b2d5c", shadow: !1, groupPadding: .1, pointPadding: .01 } }, tooltip: { shared: !0, useHTML: !0, borderColor: "#42BFC7", formatter: function() { var a = this.x; return a = 1 == a ? "year" : "years", a = "" + s + " repayments after " + this.x + " " + a + "Interest-only mortgage: $" + Highcharts.numberFormat(this.points[0].y, 0) + "
Principal & interest mortgage: $" + Highcharts.numberFormat(this.points[1].y, 0) } }, series: [{ name: "Interest-only", data: t, stack: "original", legendIndex: 1 }, { name: "Principal and interest", data: u, stack: "compare", legendIndex: 2 }] }); a = '
Interest-only mortgage:
' + s + " repayments (" + h + ' years): ' + MSCalc.currency(m) + '
' + s + " repayments (" + i + ' years): ' + MSCalc.currency(n) + '
Total cost: ' + MSCalc.currency(p) + '
Principal & interest mortgage:
' + s + " repayments (" + f + ' years): ' + MSCalc.currency(o) + '
Total cost: ' + MSCalc.currency(q) + "
You will pay " + MSCalc.currency(r) + " more with an interest-only mortgage over the life of the loan.
After " + h + " years your " + s + " repayments will increase by " + MSCalc.currency(x) + ".
", $("#inline-result").html(a) dataLayer.push({ event: 'calculatorCompleted' }); } } , MSCalc = { PMT: function(a, b, c, d, e) { var f; if (0 === a) f = (c + d) / b; else { var g = Math.pow(1 + a, b); f = 1 === e ? (d * a / (g - 1) + c * a / (1 - 1 / g)) / (1 + a) : d * a / (g - 1) + c * a / (1 - 1 / g) } return -f }, currency: function(a, b, c, d, e) { "boolean" == typeof a && (a = 0), "string" == typeof a && (a = a.replace(/[^0-9-.]/g, ""), (isNaN(a) || a.length < 1) && (a = 0)), b = isNaN(b = Math.abs(b)) ? 0 : b, c = void 0 === c ? "$" : c, e = void 0 === e ? "." : e, d = void 0 === d ? "," : d; var f = a < 0 ? "-" : "" , g = parseInt(a = Math.abs(+a || 0).toFixed(b)) + "" , h = (h = g.length) > 3 ? h % 3 : 0; return f + c + (h ? g.substr(0, h) + d : "") + g.substr(h).replace(/(\d{3})(?=\d)/g, "$1" + d) + (b ? e + Math.abs(a - g).toFixed(b).slice(2) : "") }, interest: function(a, b, c, d) { "boolean" == typeof a && (a = 0), "string" == typeof a && (a = a.replace(/[^0-9-.]/g, ""), (isNaN(a) || a.length < 1) && (a = 0)), b = isNaN(b = Math.abs(b)) ? 2 : b, d = void 0 === d ? "." : d, c = void 0 === c ? "," : c; var e = a < 0 ? "-" : "" , f = parseInt(a = Math.abs(+a || 0).toFixed(b)) + "" , g = (g = f.length) > 3 ? g % 3 : 0; return e + (g ? f.substr(0, g) + c : "") + f.substr(g).replace(/(\d{3})(?=\d)/g, "$1" + c) + (b ? d + Math.abs(a - f).toFixed(b).slice(2) : "") + "%" }, toFloat: function(a) { return "number" != typeof a && (a = a.replace(/[^0-9-.]/g, ""), (isNaN(a) || a.length < 1) && (a = 0)), parseFloat(a) } };Disclaimers
- This is a model, not a prediction. Amounts and repayment periods are estimates only, actual amounts may be higher or lower.
- Results are based on information you have provided and do not take your personal circumstances into account.
- This calculator applies to loans which have an interest-only period, then for the remaining period of the loan, both principal (amount borrowed) and interest are repaid.
- Initial inputs will be displayed on the left hand side of the calculator.
- The graph displays the periodic repayments for an interest-only loan and the repayments for a comparable principal and interest loan with the same amount borrowed, interest rate, repayment frequency and fees as the interest-only loan.
- This calculator is not intended to be your sole source of information when making a financial decision. You may wish to consider getting advice from a licensed finance professional.
- Using this calculator does not guarantee you will be eligible for a loan. You will need to satisfy your lender's lending criteria.
Assumptions
- Interest rates do not change for the life of the loan.
- Interest is calculated by compounding on the same frequency as the repayment selected, i.e. weekly, fortnightly, monthly quarterly or annually.
- It does not take into account up-front fees, such as loan establishment fees.
- It does not consider your ability to make the repayments shown. To help you consider the impact of interest rates changes, we suggest exploring the impact of a 2% interest rate rise. Interest rates could rise in future by more than 2%.
- Affordable repayments cannot be less than the fees entered.
FAQs
Is it worth getting an interest-only mortgage? ›
Most landlords prefer interest-only mortgages, as it keeps their overheads low. The loan can eventually be repaid by selling the property (hopefully at a profit) so provided you can afford the initial deposit, interest-only is often your best bet.
How do I calculate interest only payments in Excel? ›- IPMT is Excel's interest payment function. It returns the interest amount of a loan payment in a given period, assuming the interest rate and the total amount of a payment are constant in all periods. ...
- Weekly: =IPMT(6%/52, 1, 2*52, 20000)
- Monthly: =IPMT(6%/12, 1, 2*12, 20000)
- Quarterly: ...
- Semi-annual:
Yes, you can change your mortgage from repayment to interest-only. Depending on your situation at the time, you can apply to remortgage onto an interest-only deal. You'll need to check when your current deal ends if you're on a fixed rate, as you could be hit with big fees for changing your mortgage.
What is a 10 year interest-only mortgage? ›At its most basic, an interest-only mortgage is one where you only make interest payments for the first several years—typically five or 10—and once that period ends, you begin to pay both principal and interest.
How long do you pay interest on an interest-only mortgage? ›You'll pay interest on a monthly basis during the mortgage term, which might be as short as a few years or more than 20 years. Once your mortgage term is over, you'll still owe the lender the same amount you initially borrowed – so you'll need to either pay it back or remortgage your home.
What is a disadvantage of an interest-only mortgage? ›Property might depreciate
Another risk with interest-only loans is if your property loses value, while you are not repaying any of the principal, then you could end up owing more than it is actually worth, possibly requiring you to sell for a loss.
You have a deposit of at least 25% Your income meets the requirements of your lender.
Can you pay off an interest-only mortgage early? ›Yes, you can pay off an interest-only mortgage early but as with fixed-rate mortgages this might incur an Early Repayment Charge (ERC) so check with your lender.
What is an interest-only loan example? ›A line of credit is a good example of an interest-only loan. Because there are no principal payments, the monthly servicing requirements are low. They can also be paid back and then “redrawn” (meaning borrowed again) without penalty, making them highly flexible.
What is it called when interest is only calculated once? ›Simple interest is a calculation of interest that doesn't take into account the effect of compounding. In many cases, interest compounds with each designated period of a loan, but in the case of simple interest, it does not.
Does Excel have a simple interest formula? ›
There is a formula in Excel which calculates simple interest by multiplying the principal, the rate, and the term.
Will my bank let me go interest-only? ›Yes. Most lenders will be open to letting you change from a repayment mortgage to an interest-only mortgage. However, they'll want to do some strict checks before they decide for sure, as they'll need to be confident they're going to get their money back!
What is a repayment plan for an interest-only mortgage? ›With interest-only mortgages, you only pay off the interest on the amount you borrow. You use savings, investments or other assets you have (known as 'repayment plans') to pay off the total amount borrowed at the end of your mortgage term.
When should you use an interest-only loan? ›"Interest-only loans are generally for those folks that are probably not going to be in the property for a long period of time," says Jim Linnane, president of retail lending at Stearns Lending. "They're usually thinking in five-, seven- or 10-year increments."
What is the longest term for interest-only mortgage? ›Interest only mortgage
It is entirely your responsibility to ensure that at the end of the term the remaining balance on your mortgage is repaid in full by your repayment strategy. The maximum term for interest only is 25 years.
If you have an Interest Only mortgage, your monthly payments have been paying the interest but have not reduced your loan balance (unless you have been making overpayments to purposely reduce the balance of your mortgage). This means that at the end of your agreed mortgage term, you need to repay your loan in full.
Can I get an interest-only mortgage at 60? ›While there's no minimum age requirement, retirement interest-only mortgages are generally aimed at older borrowers, such as the over 55s, over 60s and pensioners who might find them easier to qualify for than a typical interest-only mortgage.
Can you pay interest-only forever? ›While most banks only allow you to pay interest only for 5 years, there are others that allow interest only home loans for up to 15 years! Fix for up to 15 years. Switch back to principal and interest at any time. Make extra repayments with no limitations.
Can I extend the length of my interest-only mortgage? ›Yes, it is possible. But, extending the term with your current provider is by no means guaranteed. Interest-only mortgages are riskier than conventional ones, making applying for an extension more difficult at times. Extensions are always at the discretion of the lender.
Is an interest-only mortgage better than renting? ›If you opt for an interest-only mortgage, your monthly payments will be lower, which can be a big advantage for landlords. However, you do of course have to pay back the capital owed at the end of the term.
What is the point of interest-only? ›
The point of an interest-only loan is to reduce your regular mortgage repayments for an agreed-upon period of time. This can be appealing for first home buyers, allowing them to manage their finances during the early stages of owning a home, as well as property investors looking to take advantage of tax benefits.
Can you live on interest-only? ›Living Off of Interest Alone in Retirement
When doing the math for retirement, interest-only retirement is an ideal strategy where you invest your savings in assets that pay you interest and you live off that money after retiring without touching the principal balance.
To qualify for an interest-only mortgage, you'll need to prove to your lender that you have a solid repayment plan. This could come in the form of investments like ISAs, or you might have cash in savings or endowment policies. Alternatively, you could sell a second property, if you have one.
Can I get an interest-only mortgage with no deposit? ›No, you always need a deposit or equity in your current home to get an interest-only mortgage. Interest-only mortgages are considered riskier. A full repayment mortgage means you pay off the equity as well as the interest.
How much can you borrow interest-only mortgage? ›If you're looking to borrow up to 60% LTV, your whole mortgage can be interest only. Or you can take a Part & Part approach with any combination of your choice. If you want to borrow between 60% and 75% LTV, up to 60% of the value of the property can be borrowed on interest only.
What happens if you pay interest only? ›You pay nothing off the principal during the interest-only period, so the amount borrowed doesn't reduce. Your repayments will increase after the interest-only period, which may not be affordable. The value of an asset such as your house or property, less any money owing on it.
Can you release equity on an interest-only mortgage? ›Yes. If your interest-only mortgage term is coming to an end and you need funds to pay off the outstanding balance, you can release equity from your home for repayment. To be a workable solution, you will need to have enough equity in your home to repay your initial interest only mortgage.
Why do people want interest-only loans? ›Most interest-only loans don't restrict you from making extra payments to lower your principal. You can do this whenever you like, and it will generally lower your monthly interest payment. This can also be useful if you have variable income that means you can pay more some months are less others.
Why would some people choose an interest-only loan? ›Interest-only loans allow investors to maximise their tax-deductible expenses. Given that the interest charges on investment loans are tax-deductible, investors often get interest-only loans to claim higher tax deductions.
What are the 3 types of interest? ›What are the Different Types of Interest? The three types of interest include simple (regular) interest, accrued interest, and compounding interest.
What are the 2 permitted methods of calculating interest? ›
Institutions shall calculate interest on the full amount of principal in an account for each day by use of either the daily balance method or the average daily balance method. Institutions shall calculate interest by use of a daily rate of at least 1/365 of the interest rate.
What is the basic formula to calculate interest? ›Here's the simple interest formula: Interest = P x R x T. P = Principal amount (the beginning balance). R = Interest rate (usually per year, expressed as a decimal). T = Number of time periods (generally one-year time periods).
What is the easiest way to calculate simple interest? ›To calculate simple interest, multiply the principal amount by the interest rate and the time. The formula written out is "Simple Interest = Principal x Interest Rate x Time." This equation is the simplest way of calculating interest.
What is the formula to calculate interest? ›It is calculated by multiplying the principal, rate of interest and the time period. The formula for Simple Interest (SI) is “principal x rate of interest x time period divided by 100” or (P x Rx T/100).
When can you switch to interest-only? ›Switching from principal and interest to interest-only
If you have an investment property and want to switch from principal and interest to interest-only payments you'll need to be within five years of your initial loan settlement date with a clear repayment history.
With an interest-only mortgage, you only pay the interest on the loan. At the end of the term, you'll still owe the original amount you borrowed. The main advantage of paying a mortgage on an interest-only basis is that your monthly payments will be much cheaper.
What are the pros and cons of an interest-only loan? ›| ✓ Pros | ⨯ Cons |
|---|---|
| During the interest-only period, the whole amount of the monthly payment (for mortgages up to $750,000) qualifies as tax-deductible. | Income may not grow as quickly as planned. |
| The home may not appreciate as fast as the borrower would like. |
For example, if you currently owe $500 on your credit card throughout the month and your current APR is 17.99%, you can calculate your monthly interest rate by dividing the 17.99% by 12, which is approximately 1.49%. Then multiply $500 x 0.0149 for an amount of $7.45 each month.
How are interest only Heloc payments calculated? ›Interest-only payments are based on the outstanding loan balance and interest rate. During the repayment period, the payment includes both repayment of the loan principal, plus monthly interest on the outstanding balance.
What methods are used to calculate interest on a single payment loan? ›What Is Add-On Interest? Add-on interest is a method of calculating the interest to be paid on a loan by combining the total principal amount borrowed and the total interest due into a single figure, then multiplying that figure by the number of years to repayment.
What is the formula for calculating monthly payments? ›
- M = Total monthly payment.
- P = The total amount of your loan.
- I = Your interest rate, as a monthly percentage.
- N = The total amount of months in your timeline for paying off your mortgage.
A sum of $50,000 in cash can earn about $65 a year in an average bank savings account or as much as $2,250 if you put it into a high-quality corporate bond fund. Other options include money market accounts, money market funds, certificate of deposits and government and corporate bonds.
How do I calculate how much interest I will pay on my mortgage? ›Divide your interest rate by the number of payments you'll make that year. If you have a 6 percent interest rate and you make monthly payments, you would divide 0.06 by 12 to get 0.005. Multiply that number by your remaining loan balance to find out how much you'll pay in interest that month.
How do I calculate the interest on my mortgage? ›7 How to calculate mortgage interest
Take the current outstanding amount owed on your mortgage and multiply that number by your current interest rate as a decimal. For instance 2% would be 0.02. Divide that number by 12 and that will give you the amount due in interest on your next payment.
If you have an interest-only mortgage
If you have more than 50% equity in your property and a repayment plan that's on track and accepted by a range of lenders, then you should be okay. If you don't, you might find it difficult to remortgage when your existing deal comes to an end.
Loan payment example: on a $50,000 loan for 120 months at 8.00% interest rate, monthly payments would be $606.64.
What is the difference between HELOC and interest-only HELOC? ›In some cases, HELOCs are repaid like traditional mortgage loans—with monthly payments going toward both the interest and principal balance. But interest-only HELOCs only require interest payments during the draw period. Once that period expires, you'll make larger payments to catch up.
What is the payment on an interest-only loan? ›What is an interest-only mortgage? An interest-only mortgage is a loan with monthly payments only on the interest of the amount borrowed for an initial term at a fixed interest rate. The interest-only period typically lasts for 7 - 10 years and the total loan term is 30 years.
What are 3 different methods of calculating interest? ›There are three different interest calculation methods you can choose from for your loan product: Fixed Flat. Declining Balance. Declining Balance (Equal Installments)
How do you calculate interest rate example? ›- (P x r x t) ÷ 100. ...
- (P x r x t) ÷ (100 x 12) ...
- FV = P x (1 + (r x t)) ...
- Example 1: If you invest Rs.50,000 in a fixed deposit account for a period of 1 year at an interest rate of 8%, then the simple interest earned will be:
What is the current interest rate? ›
Today's national 30-year mortgage rate trends
On Friday, November 25, 2022, the current average rate for a 30-year fixed mortgage is 7.32%, increasing 15 basis points over the last seven days.
Standards may differ from lender to lender, but there are four core components — the four C's — that lender will evaluate in determining whether they will make a loan: capacity, capital, collateral and credit.