1. What is Interest-Only Mortgage Payment?

An interest-only mortgage payment calculates the monthly payment that covers only the interest portion of the loan, without reducing the principal balance. This results in lower initial payments but the principal remains unchanged.

2. How Does the Calculator Work?

The calculator uses the interest-only formula:

Where:

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

Explanation: The calculation multiplies the principal amount by the monthly interest rate to determine the interest payment due each month.

3. Importance of Interest-Only Calculation

Details: Understanding interest-only payments helps borrowers plan their finances, assess affordability, and make informed decisions about mortgage options and repayment strategies.

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?
A: An interest-only mortgage requires paying only the interest for a set period, after which payments increase to cover both principal and interest.

Q2: What are the advantages of interest-only payments?
A: Lower initial payments, improved cash flow, and potential tax benefits (consult a tax advisor).

Q3: What are the risks of interest-only mortgages?
A: Principal balance doesn't decrease during interest-only period, potential payment shock when principal repayment begins, and risk of negative equity.

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

Q5: Is interest-only suitable for everyone?
A: Typically suited for borrowers with irregular income, expecting future income growth, or investors using leverage strategies.