Once the introductory period concludes, you must pay interest and principal for the remainder of the loan at the market rate, which can fluctuate up or down.įor instance, with an interest-only 5/1 ARM, the interest rate remains fixed for five years (represented by the “5”). With an “interest-only ARM,” you make interest-only payments at a fixed interest rate during the loan’s introductory period. There are several ways interest-only mortgages are structured, but the most common interest-only loans are structured similarly to adjustable-rate mortgages (ARMs). These loans tend to have stricter underwriting requirements compared to conventional loans and are geared more towards borrowers with the financial background and assets to qualify for much larger loan amounts. Not everyone qualifies for an interest-only mortgage. Additionally, because you only pay interest at the outset, you don’t immediately begin to accumulate home equity as you would with a conventional mortgage. However, there are trade-offs that come with those initial lower payments.įor one, interest-only mortgage rates tend to be higher than rates for conventional mortgages since mortgage lenders consider them a bigger risk, so you may end up paying more in interest over the life of the loan.
Once this interest-only phase ends, the loan moves into an amortized schedule, during which you pay both the interest and principal for the remainder of the loan.įor borrowers who want to buy an investment property or keep their monthly payments low for a set period, an interest-only loan could be a good option. During this phase, you only pay the interest on the loan, or the cost of borrowing money from the lender. In most cases, interest-only loans begin with a designated period that can range between three and 10 years. What Is an Interest-Only Mortgage?Īn interest-only mortgage is a type of loan where you only need to pay the interest portion of your loan principal-at first.
The calculator will then give you an estimate on how much you will pay monthly during the interest-only period, how much your monthly payments will be once the interest-only period ends and converts to the amortization phase, and how much you will pay over the entire loan term. To use this interest-only mortgage calculator, you’ll need to gather some basic information including:
Interest only mortgage calculator monthly payment how to#
How To Use This Interest-Only Mortgage Calculator
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