1. What is Interest Only Mortgage?

An interest-only mortgage is a loan where the borrower pays only the interest for a set period, typically 5-10 years. During this period, the principal balance remains unchanged.

2. How Does the Calculator Work?

The calculator uses the simple interest only formula:

Where:

• \( Balance \) — Loan amount in AUD
• \( Rate \) — Annual interest rate in decimal form

Explanation: The formula calculates the monthly interest payment by dividing the annual interest by 12 months.

3. Importance of Interest Only Payment Calculation

Details: Understanding your interest-only payments helps with budgeting and financial planning during the interest-only period of your mortgage.

4. Using the Calculator

Tips: Enter your loan balance in AUD and annual interest rate in decimal form (e.g., 0.05 for 5%). All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What happens after the interest-only period ends?
A: The loan typically converts to a principal-and-interest loan, resulting in higher monthly payments.

Q2: Are interest-only mortgages suitable for everyone?
A: They're best for investors or those expecting higher future income, as they require discipline to manage the principal repayment later.

Q3: How does ANZ structure their interest-only loans?
A: ANZ typically offers interest-only periods of up to 5 years for owner-occupiers and up to 10 years for investors.

Q4: Can I make principal payments during the interest-only period?
A: Yes, most lenders including ANZ allow voluntary principal payments during the interest-only period.

Q5: How does this differ from a principal-and-interest loan?
A: With principal-and-interest loans, each payment reduces your loan balance, while interest-only payments maintain the original loan amount.