Interest-Only Mortgage Calculator​

Work out your repayments for an interest-only home loan during and after the interest-only period with our interest-only mortgage calculator. Enter your details into the calculator to get an instant result.

How does the interest-only mortgage calculator work?

Our interest-only mortgage calculator works a lot like a typical mortgage payment calculator, except it shows you two monthly repayment estimates instead of just one:

  1. Your interest-only repayments.
  2. Your principal and interest repayments.

Interest-only repayments are your principal and interest payments minus the principal. Once your interest-only period ends, you'll be required to pay principal and interest for the remaining life of the loan.

To use the calculator, all you need to do is input:

  • Loan Amount: The total amount of money you want to borrow.
  • Interest Rate: The interest rate of the home loan.
  • Loan Term: How long you have to repay the loan (typically between 25-30 years).
  • Repayment Frequency: How often you make loan repayments (usually weekly, fortnightly, or monthly).
  • Interest-Only Period: How long you are required to make interest-only payments.
  • Loan Fee: Fees you need to pay during the life of the loan, such as account maintenance or servicing fees.

The loan balance chart gives you a visual breakdown of the difference between the total balance you owe and how much more you'll end up paying in interest.

How accurate is this calculator?

This interest-only mortgage calculator operates on a series of assumptions, including:

  • Upfront and end of loan fees are not considered, only ongoing fees.
  • The interest rate remains the same during the loan term.
  • Interest is calculated by compounding the same repayment frequency.
  • A year consists of 26 fortnights or 52 weeks and is counted as 364 days.
  • No rounding takes place during calculation, while in practice, repayments are calculated to the nearest cent.

Use our interest-only mortgage calculator as a guide to help you estimate what your monthly payments will look like with an interest-only home loan. The actual number you get from a financial institution may significantly vary from the result you get with our calculator.

What is an interest-only home loan?

If you take out an interest-only loan, it means that your repayments will only need to cover the interest on the amount borrowed for a limited time. During this interest-only period (such as the first five years), none of your repayments will go towards paying back the sum you borrowed to buy a home.

Once the interest-only period ends, your home loan will switch back to normal, and you'll need to make higher repayments to cover the principal + interest. For example, for a standard loan term of 30 years, you would only need to pay interest fees for the first five years before you needed to start making repayments on the principal amount you borrowed.

Advantages of an interest-only loan

  • Mortgage payments start lower, making it easier to adjust to paying them and draining less of your regular income.
  • If you're buying an investment property, an interest-only loan allows you to maximise your tax-deductible expenses.
  • It may be beneficial with short-term loans like construction or bridging finance loans.

Disadvantages of an interest-only loan

  • The interest rate may be higher than a standard loan, making it costlier in the long term.
  • None of your repayments during the interest-only period help you pay off the principal sum.
  • Your mortgage repayments may no longer be affordable to you once the interest-only period ends.
  • If property value does not increase during the interest-only period, you won't generate any equity until you start making principal and interest payments.

Should you get an interest-only home loan?

As with any financial product, an interest-only home loan has its own advantages and disadvantages. Depending on your circumstances, having cheaper initial monthly payments during the interest-only period can give you the breathing room you need to ensure your home loan repayments are manageable. 

However, the interest-only period also means it will take longer for you to start paying back the loan amount and generate equity in your home. If you're unsure which option is most suitable for you, you should consider seeking professional financial advice.

Frequently Asked Questions

How do you calculate interest only on a loan?

To calculate interest-only loan repayments, you need to multiply the principal amount by the loan's interest rate and divide it by repayment frequency. For example, for a $500,000 home loan with a 3% interest rate, your monthly repayments during the interest-only period would be $1250.

How long can you have an interest-only mortgage?

For a standard interest-only mortgage, the interest-only period will only last between five to ten years. The interest-only period must end eventually, or you will never begin to pay back the original amount you borrowed.