Loan grace period calculator

A loan grace period is a time when the borrower pays only the interest on the loan without repaying the principal. It is a form of deferred repayment used, among others, for mortgages during the construction of a property.

A typical grace period for mortgages is 6–24 months. For investment loans or business loans it can be longer. Grace period terms are always negotiated with the bank.

A grace period provides short-term relief (a lower instalment during the grace period), but in the long run it is more expensive — interest is charged on the full loan amount throughout the grace period. Principal repayment only begins after it ends.

After the grace period the principal remains unchanged, but the repayment term is shorter. Instalment: R = K × r × (1+r)^n / ((1+r)^n − 1), where K = loan amount, r = monthly rate, n = remaining months.

The calculator works out the extra cost as the difference in total interest with and without the grace period. The longer the grace period and the higher the interest rate, the higher the extra cost.

Yes, so-called loan holidays or a mid-repayment grace period are possible at some banks. You can also use statutory loan holidays. The terms must be agreed with the bank.