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Interest Only Payment Formula:
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An interest-only mortgage allows borrowers to pay only the interest portion of the loan for a specified period, after which amortization payments begin. This calculator helps determine both interest-only payments and subsequent amortization amounts.
The calculator uses the interest-only formula:
Where:
For amortization calculation:
Explanation: The interest-only payment covers only the interest accrued each month, while the amortization amount represents the principal reduction when full EMI payments begin.
Details: Interest-only mortgages can provide lower initial payments, making them attractive for certain borrowers. However, it's crucial to understand the transition to full amortization payments and the overall cost implications.
Tips: Enter the principal amount in dollars, annual interest rate as a percentage, and the expected EMI amount. All values must be positive numbers.
Q1: What is the advantage of interest-only mortgages?
A: They offer lower initial payments, which can be beneficial for borrowers with variable income or those expecting higher future earnings.
Q2: When do amortization payments begin?
A: Typically after an initial period (5-10 years) of interest-only payments, though this varies by loan terms.
Q3: Are interest-only mortgages risky?
A: They can be riskier than traditional mortgages as the principal doesn't decrease during the interest-only period, and payments increase significantly when amortization begins.
Q4: Who should consider interest-only mortgages?
A: They may suit investors, those with irregular income, or borrowers who plan to sell the property before amortization begins.
Q5: How does the amortization amount affect the loan term?
A: The amortization amount determines how quickly the principal is paid down once full payments begin, affecting the remaining loan term.