Calculate you interest-only loan repayment
Home loan comparison
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Interest Only Home Loan Calculator
The figures provided should be used as an estimate only, should not be relied on as true indication of your home loan repayments, or a quote or indication of pre-qualification for any home loan product. The figures are based upon the information you put into the calculator. We have made a number of assumptions when producing the calculations including:
• Loan term and loan amount: We assume the loan term and loan amount are what you enter into the calculator.
• Interest rates: We assume that the rate you enter, is the rate that will apply to your loan for the full loan term even if you choose an interest only rate which, in practice, will only apply for a limited period after which a different rate will apply.
• Interest and repayments: The displayed total interest payable is the interest for the loan term, calculated on the entered interest rate. We make the following assumptions about repayments:
- repayments are made monthly.
- your annual interest charge is divided equally over 12 monthly payments (in practice, interest is calculated daily and charged monthly which can lead to your interest charge varying between months).
- interest is charged to the loan account at the same frequency and on the same day as the repayments are made (this may not be the case in practice).
- only your initial interest-only repayment amount is calculated. We assume that this repayment amount is payable for the loan term. In practice, repayment amounts can change for a variety of reasons.
What is an 'interest-only' loan?
An interest-only loan requires you to only pay interest on the loan for a fixed time period. Most other home loans require you to cover both the interest costs and the loan balance (principal) upon the start of the term.
Interest-only loans allow you to have lower monthly repayments for a set period of time, usually 1-5 years, where you only pay the interest charged on your loan. At the end of this interest-only repayment period, you will begin to repay the principal loan balance plus the interest, resulting in increased monthly repayments.
Below are some of the pros and cons to interest-only loans.
Pros
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Initial monthly repayments are relatively low for the initial period of the loan
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If invested, loan qualifies for tax-deduction (on certain loan amounts) during the interest-only period
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Helps free up extra cash to help cover other expenses
Cons
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Greater risk of spending extra money instead of saving it for future repayments
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Interest rate is likely to be higher than a standard principle and interest loan
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Repayments will increase once the interest-only period ends
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The amount borrowed does not reduce until you start paying off the principle
Before Applying for an Interest-Only Mortgage
People with smaller cash flow generally benefit from interest-only mortgages. Home buyers that need to use extra money for other expenses should consider applying for an interest-only mortgage.
However, this type of loan may not be suitable for those who struggle to save money due to the increase in the repayment amount once the interest-only period ends. The risks of not saving enough money could incur when the interest-only period ends.
Qualifications when applying for this loan are comparatively higher than principal and interest loans, so if you have a low credit score approval may be difficult.
It's important to keep in mind in mind the importance of a well-constructed payment plan for interest-only loans, so don't forget to explore and make use of our interest-only mortgage calculator before making a decision.
Interest-Only Loan FAQs
For an interest-only mortgage, you are only paying the interest, not your loan balance. When the interest-only period ends, you will likely have an increased monthly repayment, as you will begin to pay back the principal as well as the interest charged each month.
Interest-only loans offer lower monthly repayments upon the start of the term for a given period. Low payment expenses give the advantage of increased cash flows for home buyers.
In most cases, having a high credit score and demonstrating the ability to make your repayments will significantly increase your chance of getting approved for an interest-only loan.
On an interest-only mortgage, lenders may charge higher interest rates compared to principal and interest loans, as interest-only loans pose a higher risk to the lender because you aren’t immediately paying down your principal.
Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. Rates correct as of 9 October 2024.
^The addition of offset sub-account means your comparison rate will change.
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Savings.com.au
Savings.com.au Pty Ltd ACN 161 358 363 | Australian Financial Services Licence and Australian Credit Licence 515843