Interest-Only Home Loan Calculator

Calculating Interest-Only Payments

An interest-only home loan payment covers interest on the outstanding loan balance. The balance stays unchanged while you make only those payments.

To calculate interest-only mortgage payments, multiply the balance by the annual rate, then divide by the number of payments each year. This calculator uses 12 monthly, 26 fortnightly or 52 weekly periods.

For the starting $500,000 balance at 6%, annual interest is $30,000. That gives $2,500.00 per month. The calculator rounds each period's interest to cents, so fortnightly and weekly totals can differ slightly.

The equal-period model excludes fees, offset balances and extra repayments. A lender using daily interest can produce different payments because calendar months have different lengths.

When Principal Repayments Start

When interest-only ends, the unchanged loan balance must be repaid over the remaining term. Five interest-only years within a 30-year loan leave 25 years for principal-and-interest repayments.

At the starting 6% rate, the $500,000 balance requires $3,221.51 a month over those 25 years. The monthly payment rises by $721.51 from the $2,500.00 interest-only payment.

The principal-and-interest calculation uses the balance, rate per payment period and number of remaining payments. At zero interest, it divides the balance by the remaining number of payments.

Each payment and interest charge is rounded to cents, with the final payment adjusted to clear the balance. A positive principal-and-interest payment has a one-cent minimum.

Moneysmart explains the switch to principal repayments and the higher payment it can require. Compare the later payment with the client's expected cash flow before choosing an interest-only period.

Comparing Total Interest

Starting principal repayments immediately reduces the balance sooner. This comparison gives both loans the same starting balance, total term, payment frequency and rate path.

If you enter different rates for the two phases, the principal-from-start loan uses the first rate for the same initial period. Its payment is recalculated at the second rate over the remaining term, using its reduced balance.

These totals use the starting $500,000 balance, monthly payments and 6% throughout. The principal-from-start payment is $2,997.75 a month, compared with $3,221.51 after the five-year interest-only phase.

The comparison isolates the repayment structure. Actual interest-only and principal-and-interest products can have different rates and fees, which this same-rate-path comparison does not assess.

Rate Changes During the Loan

The rate afterwards field changes the repayment needed over the remaining term. It tests an assumed future rate without predicting where rates will move.

Keep the starting $500,000 balance, 30-year term and five-year interest-only period. Changing only the later rate from 6% to 7% raises the later monthly payment from $3,221.51 to $3,533.90.

The interest-only payment remains $2,500.00 because its 6% rate stays unchanged. Enter a lower later rate to test a different outcome, then compare the payment and total interest together.

The Moneysmart mortgage calculator assumptions explain the limits of a constant-rate, periodic-interest model. This tool applies one constant rate within each phase and does not model later changes within that phase.