The interest rate during the adjustable rate period is called the fully-index rate and is determined by adding the index to the margin. The interest only period interest rate is usually less than the rate for a 30 year fixed rate mortgage but higher than the rate for a comparable adjustable rate mortgage (ARM). The interest rate for an interest only mortgage during the interest only period is set by the lender based on market conditions and negotiations with the borrower. ![]() Interest Rate for an Interest Only Mortgage For example, with a 5/1 interest only mortgage, you pay only interest at a fixed interest rate for the first five years of the loan and then you pay both interest and principal plus your mortgage rate is subject to change and potentially increase on an annual basis for the remaining 25 years of the mortgage. Interest only mortgages are often referred to as 3/1, 5/1, 7/1 or 10/1 Interest Only ARMs (IO ARMs) with the first number indicating the length of the interest only period and the second number indicating how frequently the interest rate can change during the adjustable rate period. With an an interest only mortgage you pay only interest and no principal during the first three, five, seven or ten years of the loan, which is called the interest only period, and then loan converts into an amortizing mortgage and you pay both principal and interest for the remainder of the mortgage, which is called the adjustable rate period because your interest rate is subject to change. You can also understand the total interest expense for an interest only loan based on applying the current fully-indexed rate for the remainder of the mortgage. The fully-indexed rate changes over time but this scenario allows you to evaluate what your payment may be when the mortgage begins to amortize. Our calculator shows you the current fully-indexed rate and monthly payment based on the information you inputted. For example, if the index is 3.000% and the margin is 2.500%, then the fully-indexed rate used to calculate your payment is 5.500%. The rate during this phase of an interest only mortgage is called the fully-indexed rate and is calculated by adding the index to the margin. During this phase of the loan your interest rate is also subject to adjust on an annual or semi-annual basis, depending on your mortgage terms. Following the interest only period, your mortgage amortizes which means you are required to pay both principal and interest. Click here for more information.Payment After the Interest Only Period. Bendigo Express available via online application only. For the Bendigo Complete Loan the variable interest rates displayed are based on Loan to Value Ratio (LVR) calculated using your LVR at the date we document your loan contract. ![]() ![]() The rates and repayment amounts do not include any monthly service fees or lenders mortgage insurance if applicable. Interest rates are subject to change except during a fixed rate period. The results assume regular scheduled payments and that the interest rate does not change, and do not include any discount period. There are restrictions and/or certain fees payable for additional payments for some products e.g. ![]() The offset account is not available for all loan products. You should speak to us or obtain professional advice about a loan that meets your requirements and objectives. The results are not advice on how much you can or should borrow, which product you should choose, the product features or options, or about making extra payments. They are not a quote, credit approval or offer of credit.
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