1. What is Interest Only Mortgage?

An interest-only mortgage is a loan where the borrower pays only the interest for a set period, followed by payments covering both principal and interest. This calculator helps estimate monthly payments with optional extra payments reducing the principal.

2. How Does the Calculator Work?

The calculator uses the interest-only formula:

Where:

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

With Extra Payments: Extra payments reduce the principal balance, which in turn reduces subsequent interest payments.

3. Benefits of Extra Payments

Details: Making extra payments reduces the principal faster, decreases total interest paid over the life of the loan, and can shorten the loan term significantly.

4. Using the Calculator

Tips: Enter the principal amount in dollars, monthly interest rate as a decimal (e.g., 0.005 for 0.5%), and any extra payment amount. All values must be valid positive numbers.

5. Frequently Asked Questions (FAQ)

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

Q2: How do extra payments affect my loan?
A: Extra payments reduce your principal balance, which lowers future interest payments and can shorten your loan term.

Q3: Is interest-only mortgage right for me?
A: It may be suitable if you expect higher future income or plan to sell before the interest-only period ends, but carries risks if property values decline.

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: How is monthly interest rate calculated?
A: Divide annual interest rate by 12. For example, 6% annual rate = 0.06/12 = 0.005 monthly rate.