Question 1

How are mortgage repayments calculated?

Accepted Answer

For Principal & Interest loans, monthly repayments are calculated using the standard amortisation formula: M = P * [r(1+r)^n] / [(1+r)^n - 1], where P is the loan amount, r is the monthly interest rate, and n is the total number of payments. For Interest Only loans, you only pay the interest each month (P * r), with the full principal still owing at the end.

Question 2

What is the difference between P&I and Interest Only?

Accepted Answer

Principal & Interest (P&I) repayments pay down both the loan balance and interest, so the loan is fully repaid at the end of the term. Interest Only repayments only cover the interest charges — your loan balance stays the same. Interest Only payments are lower but you still owe the full amount at the end and pay more total interest.

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