Try the interest only calculator
Play around with the figures and then speak to you mortgage broker to find out if you benefit from an interest only loan.
Call 1300 889 743 or complete our online enquiry form to discover if you qualify.
What will this calculator allow me to do?
The interest only calculator will work out how much more in interest you’ll pay over a 30-year home loan term.
You can adjust the loan amount, interest rate, interest only period and even repayment frequency in order to compare and contrast.
In this way, you can make a better decision on your budget when purchasing an investment property and how much in interest costs you’re willing to wear if it allows you to more rapidly grow your investment portfolio.
You can even enter ‘0’ for the interest only period to find out how much you can save by making principal and interest (P&I) rather than a 5-year interest only (IO) term.
Please call us on 1300 889 743 or complete our free assessment form today.
We can assess your entire situation and long-term goals and make interest only recommendations that match your needs.
Example interest only calculation
Let’s say that you wanted to borrow $500,000 to buy a $600,000 investment property (a Loan to Value Ratio of 83%).
You have plans to flip or sell the property in a couple of years because you’ve purchased in a growth suburb – you’ve done your homework.
You decide to lock in for a 3-year interest only term with a variable rate of 5.5% p.a. rather than making P&I repayments.
Assuming no loan fees and monthly repayments over 30 years, you will save $674.01 per month by not having to make principal payments.
This amounts to $24,264.36 over 3 years which you can put towards the purchase of another investment property.
You’re also pursuing a negative gearing strategy so this will help you reduce your tax bill over this period.
In just over two years, you end up selling the investment property for $900,000.
How accurate is the IO calculator?
It’s important to keep in mind that the calculator doesn’t take into account upfront fees, which can vary depending on the lender.
In addition to this, interest rates can change over the life of the loan but the calculator’s results are based on the rate remaining unchanged over a 30-year loan term.
Interest only loan applications are assessed based on whether you can repay the entire loan amount over 25 years (for a 5-year IO term) rather than a typical 30-year term.
Lenders are pretty good stress-testing your financial situation when your IO term eventually switches to higher principal and interest repayments.
However, you should consider how your financial situation may change in the short-to-medium term and how this may put you under financial stress when your repayments switch.
Isn’t it always better to pay P&I?
It really depends on what you want to achieve but interest only is typically only suited to strong and sophisticated borrowers.
Homeowners are generally better off paying down their mortgage as quickly as possible, even making extra home loan repayments if possible e.g. break costs can apply to fixed rate terms.
Investors, on the other hand, want to minimise their opportunity cost and put their money to work by investing further.
An interest only loan term, therefore, allows you to maintain your cash flow and more agility to build your property portfolio and even flip houses if you’re pursuing a capital gains strategy.
Check it out: we cover the topic of IO versus P&I extensively.
Alternatively, fill in our free assessment form or discuss your plans with one of our mortgage brokers by calling 1300 889 743 today.
We’re interest only and investment loan experts.
