1. What is Interest Only Mortgage?

An interest-only mortgage is a loan where the borrower pays only the interest for a set period, typically 5-10 years. After this period, payments increase to include both principal and interest, or the loan may require a balloon payment.

2. How Does the Calculator Work?

The calculator uses the interest-only EMI formula:

Where:

• \( P \) — Principal loan amount (₹)
• \( r \) — Annual interest rate (decimal)
• Extra payments directly reduce the principal balance

Explanation: The calculator shows your interest-only payment and how extra payments can help reduce your principal balance faster.

3. Benefits of Extra Payments

Details: Making extra payments on an interest-only mortgage can significantly reduce your principal balance, shorten your loan term, and save you money on total interest paid over the life of the loan.

4. Using the Calculator

Tips: Enter your loan principal amount, annual interest rate, and any additional monthly payment you plan to make. The calculator will show your interest-only payment and the impact of extra payments.

5. Frequently Asked Questions (FAQ)

Q1: What is the advantage of interest-only mortgages?
A: Lower initial payments, which can be beneficial for investors or those expecting higher future income.

Q2: Are there risks with interest-only mortgages?
A: Yes, payments increase significantly after the interest-only period, and you may not build equity during this period.

Q3: How do extra payments help?
A: Extra payments directly reduce your principal, helping you build equity faster and reduce total interest costs.

Q4: Can I make extra payments anytime?
A: Most lenders allow extra payments, but check your loan terms for any prepayment penalties or restrictions.

Q5: Is this calculator suitable for all currencies?
A: Yes, while displayed in ₹, the calculations work for any currency as long as you maintain consistency.