Interest only repayments

[Apollo]

Hi guys, just out of curiousity how do banks work out the interest on a sum of money. Been playing around with figures and I can't seem to understand how they arrive at them. The person looking after me at the bank tried to explain it to me but he didn't articulate it all that clearly.

He said that if I wanted to go interest only on a €390k loan at 4.45%/4.54%apr it would cost me €1,446.25 per month regardless if it was 25/30 years. Anyone know how they get this figure?

cheers

 

[ClubMan]

Simple:

€390K x 4.45% / 12 months = €1,446.25 p.m.

The repayment is constant (as long as the rate is 4.45% which is obviously not likely due to interest rate fluctuations over the years) for the full term because the capital outstanding isn't decreasing with an interest only mortgage.

The net cost of the repayments will be slightly less once owner occupier mortgage interest relief is factored in if applicable. Of course you will also have ongoing mortgage protection life assurance (level term will be required here since the capital outstanding is not reducing) and home insurance costs not necessarily payable to your lender.

 

[ClubMan]

Karl Jeacle sent me this about his calculator:

FWIW, my calculator supports interest-only calculations - just click
on the "Interest Rates" button at the bottom of the calculator to
enter the interest-only period...