If you’re considering an interest-only loan, use an interest-only calculator to help you work out what you’ll be paying each month.
Interest rates on a variable interest-only home loan usually fluctuate from time to time, so you need a way to determine what your new payments will be. An interest-only home loan calculator can help you make easy calculations on new payments and assist you to figure out how you can save on interest charges by adjusting your loan term and repayment method.
The calculator can also be useful even if you already have a mortgage, by enabling you to calculate the total interest you’ll pay in the long run and helping you decide on a repayment period that would suit you. You can also use the calculator to figure out a mortgage reduction plan that would see you pay the loan much sooner.
How to use the interest-only home loan calculator
An interest-only home loan calculator can help calculate different variables on the mortgage you intend to take so that you can customise your repayment to fit your income. The calculator is very easy to use and it gives you a clear picture of the total interest charges on your mortgage and how you can reduce your monthly repayments.
Here’s the information you need to input into the calculator to find out your monthly payments, total interest rates and total amount payable on the mortgage:
- Loan amount. This is the principal amount you intend to borrow.
- Interest rate. This is the rate used by the lender to calculate how much you’ll pay on your outstanding mortgage interest. In an interest-only home loan, you can usually pay off the interest on the mortgage without paying anything on the principal amount you borrowed for a period of five to ten years, after which you will need to pay off the principal amount within a shorter period or refinance to a new loan.
- Loan term. This is the length of time within which you are allowed to repay interest charges without paying the principal amount on the loan. During this period, your monthly payments will be low but your actual mortgage amount will not reduce.
- Loan type. The calculator allows you to choose whether to pay both the interest and principal or only service the interest charges for a certain term. Ensure you set this to "interest-only".
Why is it important to use an interest-only home loan calculator?
An interest-only home loan calculator is an important tool for anyone seeking to take out a mortgage, as it provides information that helps you decide how much to borrow, how much the interest rates on the mortgage will affect your monthly payments and other important factors to help you make an informed decision when taking up a home loan.
By calculating the total interest you are required to pay before your interest-only term is up, the calculator allows you to prepare yourself for repaying the mortgage by telling you what your interest-only monthly repayments will be. The calculator uses your starting mortgage balance and initial annual interest rate on the mortgage to calculate your monthly interest-only payments. This amount is calculated on the assumption that you do not prepay your principal amount.
With the help of the calculator, you can reset your repayment frequency so as to adjust your monthly repayments to what you can afford. This can help you free up more cash that you can use to invest in other projects.
An interest-only calculator is different from other mortgage calculators in that it allows you to choose your repayment type. Basically, you have the option of paying off your mortgage interest only for a certain period without repaying the principal, or you can service the interest charges only, making your monthly payments smaller.
The calculator can help you see how much you free up with the interest-only payments and show the effect of making extra principal payments on your home loan and how that improves your home equity. This can allow you to have greater control over your mortgage repayment and cash flow. In addition, all the monthly payments you make during the interest-only repayment term will be qualify as tax-deductible.
By allowing you to compare home loan options from different mortgage providers, an interest-only home loan calculator can help you choose a mortgage you can afford to pay without straining financially.
An interest-only home loan calculator is a handy tool when trying to take a mortgage. Many people who take an interest-only home loan do so with the intention of freeing up their money so that they can take advantage of other investment opportunities. Others take this type of loan because they do not have a stable income and making high monthly payments on their mortgage would be a financial strain.
Whatever your reason for taking out an interest-only loan, ensure you seek the proper financial advice before applying. Here are a few common questions many people ask when using an interest-only home loan calculator.
What information will the calculator give?
The calculator will help you calculate the interest-only payments required on a mortgage depending on its amount and loan term, and it will also show you the total interest payable over the life of the loan.
Can the calculator help me determine the amount I can borrow?
No, although you can get an estimate of your borrowing power by using the borrowing power calculator.
Can I calculate the effect of extra repayments?
An interest-only home loan calculator shows you how much you pay on your mortgage interest depending on the interest-only period. The calculator also shows you how much this amount can change should you make a lump sum repayment on the interest amount. This is because payments on the principal amount also decrease the interest payable and build up equity on your home.