Home
Back
Interest Only Mortgage Formula:
| From: | To: |
An interest-only mortgage is a type of loan where the borrower pays only the interest for a set period, typically 5-10 years, after which they must start paying both principal and interest. This results in lower initial payments but requires careful financial planning.
The calculator uses the interest-only mortgage formula:
Where:
Explanation: The formula calculates only the interest portion of the mortgage payment, excluding any principal repayment during the interest-only period.
Details: Calculating interest-only payments helps borrowers understand their initial financial commitment and plan for the future when full payments (including principal) will be required.
Tips: Enter the principal amount in currency units and the annual interest rate as a percentage. Both values must be positive numbers.
Q1: What are the advantages of an interest-only mortgage?
A: Lower initial payments, potential tax benefits (consult a tax advisor), and flexibility for those expecting higher future income.
Q2: What are the risks of an interest-only mortgage?
A: No equity build-up during interest-only period, potential for payment shock when principal payments begin, and risk of negative amortization if property values decline.
Q3: How long is the interest-only period typically?
A: Usually 5-10 years, after which the loan converts to a fully amortizing mortgage with higher payments.
Q4: Can I make principal payments during the interest-only period?
A: Most lenders allow optional principal payments, but check your specific loan terms as some may have prepayment penalties.
Q5: Who is best suited for an interest-only mortgage?
A: Borrowers with irregular income (e.g., commission-based), those expecting significant future earnings increases, or investors who plan to sell the property before the interest-only period ends.