1. What is Interest Only Mortgage?

An interest-only mortgage is a type of loan where the borrower pays only the interest for a certain period, typically 5-10 years. After this period, payments increase to include both principal and interest.

2. How Does the Calculator Work?

The calculator uses the interest-only mortgage formula:

Where:

• \( P \) — Principal loan amount ($)
• \( R \) — Monthly interest rate (decimal)
• \( EMI \) — Monthly interest-only payment ($)

Explanation: This calculation determines the monthly payment required to cover only the interest portion of the mortgage during the interest-only period.

3. Importance of Interest Only Calculation

Details: Understanding interest-only payments helps borrowers plan their finances during the initial period of the mortgage and prepare for higher payments when principal repayment begins.

4. Using the Calculator

Tips: Enter the principal amount in dollars and the monthly interest rate as a decimal (e.g., 0.005 for 0.5%). Both values must be valid (principal > 0, rate between 0-1).

5. Frequently Asked Questions (FAQ)

Q1: What is an interest-only mortgage period?
A: This is typically 5-10 years where you pay only interest, after which you must pay both principal and interest.

Q2: What are the advantages of interest-only mortgages?
A: Lower initial payments, potential tax benefits (consult tax advisor), and flexibility for those expecting higher future income.

Q3: What are the risks of interest-only mortgages?
A: Payments increase significantly after interest-only period, no equity build-up during interest-only period, and risk of negative amortization if property value decreases.

Q4: How do I convert annual rate to monthly rate?
A: Divide the annual interest rate by 12. For example, 6% annual = 0.06/12 = 0.005 monthly rate.

Q5: Is this calculator suitable for all mortgage types?
A: This calculator is specifically designed for interest-only mortgages during the interest-only period.