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Interest Only Mortgage Formula:
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The Interest Only Mortgage Calculator calculates the monthly payment for an interest-only mortgage in Canada. This type of mortgage requires paying only the interest portion for a specified period, with the principal repaid at the end of the term.
The calculator uses the interest-only mortgage formula:
Where:
Explanation: The formula calculates the monthly interest payment by converting the annual rate to a monthly rate and applying it to the principal amount.
Details: Understanding interest-only payments helps borrowers plan their finances during the interest-only period and prepare for the eventual principal repayment. It's particularly useful for investment properties or short-term financial planning.
Tips: Enter the principal amount in Canadian dollars and the annual interest rate as a percentage. Both values must be positive numbers.
Q1: What is an interest-only mortgage?
A: An interest-only mortgage requires paying only the interest for a set period (typically 5-10 years), after which the principal must be repaid or refinanced.
Q2: Who typically uses interest-only mortgages in Canada?
A: Investors, property flippers, and those expecting significant income increases often use interest-only mortgages for lower initial payments.
Q3: What are the risks of interest-only mortgages?
A: The main risk is the lump-sum principal payment at the end of the term, which can be challenging if property values decline or financial circumstances change.
Q4: Are interest-only mortgages common in Canada?
A: They are less common than traditional mortgages in Canada and typically have stricter qualification requirements.
Q5: Can I convert to a traditional mortgage later?
A: Most lenders allow conversion to a traditional amortizing mortgage at the end of the interest-only period, subject to qualification.