Interest Only Calculator
Interest Only Calculator
Nearly a 3rd of all home loans in Australia select interest only loan repayments. Most of these are attached to investment loans, where the borrower has the intention that their property will increase in value in the future. They are then able to use the equity in this property in coming years to purchase more property or sell and take the profit.
Having interest only repayments gives the borrower flexibility to minimise their outgoing cash flow costs, allowing them to instead focus on paying down their non-deductible personal debt such as their personal home loan, credit cards or car loans.
Although selecting an interest only loan might decrease your regular repayment amount and help manage your cash flow, Interest only agreements also often incur a higher interest rate for that interest only period of time, compared to an agreement paying Principal and Interest repayments.
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This all means you pay back a higher amount of interest than the interest component of a principal and interest loan, and during this interest only period you pay nothing towards the principal part of your loan. It is more often used as a short-term loan option to keep repayments down and manage cash flow, and not so much for someone looking to pay off their family home quicker than the loan term.
To determine which home loan is the most cost-effective for you, it is important to know if your repayments are going towards paying off the interest or towards reducing the actual loan. It is also important to balance the flexibility of interest only repayments early on, with the increased principal and interest repayments after the interest only period. Be sure to calculate this cash flow difference at the end of your interest only period, as you don’t want to put financial pressure on yourself in the future.
* The calculator below has been provided in good faith as a guidance tool only. Results are not financial advice, are a guide only, and are not a guaranteed outcome or quote. Borrowers should always discuss their individual situation with an Australian Credit Licensee or authorised Credit Representative.