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 in New Zealand. During this period, the principal amount remains unchanged.

2. How Does the Calculator Work?

The calculator uses the interest-only mortgage formula:

Where:

• \( P \) — Principal amount (NZD)
• \( R \) — Monthly interest rate (annual rate / 12, as a decimal)
• \( Interest \) — Monthly interest payment (NZD)

Explanation: The equation calculates the monthly interest payment by multiplying the principal amount by the monthly interest rate.

3. Importance of Interest Calculation

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

4. Using the Calculator

Tips: Enter the principal amount in NZD and the annual interest rate as a percentage. The calculator will compute your monthly interest payment.

5. Frequently Asked Questions (FAQ)

Q1: What happens after the interest-only period ends?
A: After the interest-only period, you'll need to start paying both principal and interest, which will increase your monthly payments.

Q2: Are interest-only mortgages common in New Zealand?
A: Yes, they are popular among investors and some homeowners, but lenders have tightened criteria in recent years.

Q3: Can I make principal payments during the interest-only period?
A: This depends on your loan terms - some allow voluntary principal payments while others don't.

Q4: 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 don't reduce the principal.

Q5: Is this calculator specific to New Zealand?
A: Yes, it's designed for the NZ market where interest rates and mortgage products may differ from other countries.