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Interest-Only vs Amortizing Loan

Compare interest-only payments versus a fully amortizing loan. See the difference in monthly cost and total interest paid over the loan term.

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๐Ÿ‡ฉ๐Ÿ‡ฐ All calculations are based on Danish rules, rates, and currency (DKK). This calculator is translated for convenience but applies exclusively to Denmark.

Interest-Only vs Amortizing Loan Comparison

In Denmark, many mortgage products offer an interest-only option (afdragsfrihed) for up to 10 years. During this period, you only pay interest and do not reduce the principal. This calculator compares the two approaches side by side: an interest-only loan versus a fully amortizing annuity loan.

When Interest-Only Makes Sense

Interest-only periods can be useful when you need lower monthly payments temporarily. However, the trade-off is significant: you pay more total interest because the principal never decreases during the interest-only period.

The True Cost Difference

The difference in total interest paid between the two approaches can be substantial. With an amortizing loan, each payment reduces the principal, which in turn reduces the interest charged in subsequent months. With interest-only, you pay the same interest every month because the principal remains unchanged.

Frequently Asked Questions

Does it pay to have an interest-only period?

While your mortgage is interest-only, you pay a lower monthly amount, giving you more financial breathing room. But it comes at a cost. Before choosing, understand what it means for your finances in both the short and long term.

When does an interest-only period make sense?

If you owe at most 40-60% of the property value and need to keep costs down, interest-only makes good sense. This could apply to retirees or those saving for future goals.

What is the 60/4 rule?

If you borrow more than 60% of the property value (LTV > 60%) AND your total debt is more than 4 times household income before tax (debt factor > 4), you cannot choose a so-called 'risky loan'.

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