1. What is Interest-Only Payment?

Interest-only payments mean you only pay the interest charged on your loan during the interest-only period, without reducing the principal amount. This is common for investment loans where the interest may be tax-deductible.

2. How Does the Calculator Work?

The calculator uses the interest-only formula:

Where:

• \( P \) — Principal loan amount (AUD)
• \( r \) — Monthly interest rate (decimal)
• \( PMT \) — Monthly interest payment (AUD)

Explanation: The calculation converts annual interest rate to monthly rate (dividing by 12) and multiplies by the principal amount.

3. Importance of Interest-Only Calculation

Details: Understanding your interest-only payments helps with cash flow management and investment property budgeting during the interest-only period.

4. Using the Calculator

Tips: Enter the principal loan amount in AUD and the annual interest rate as a percentage (e.g., 5.25%). All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How long can I have interest-only payments?
A: Typically 5-10 years for investment loans, after which you'll need to switch to principal and interest payments.

Q2: Are interest-only payments tax deductible?
A: For investment loans, the interest is generally tax deductible (consult your accountant for specific advice).

Q3: What happens after the interest-only period?
A: Your payments will increase as you start paying both principal and interest, which reduces your loan balance.

Q4: Can I make extra repayments during interest-only?
A: This depends on your loan terms - some allow extra repayments, others may charge fees.

Q5: Is interest-only suitable for owner-occupied loans?
A: Generally not recommended as you're not reducing your debt, though some use it short-term for cash flow reasons.