1. What is Interest-Only Mortgage?

An interest-only mortgage is a type of loan where the borrower pays only the interest for a set period, typically 5-10 years, without reducing the principal balance. This results in lower initial payments but requires larger payments later.

2. How Does the Calculator Work?

The calculator uses the interest-only mortgage formula:

Where:

• \( P \) — Principal loan amount ($)
• \( R \) — Annual interest rate (%)

Explanation: The formula calculates the monthly interest payment by converting the annual rate to a monthly rate and applying it to the principal amount.

3. Importance of Interest-Only Calculation

Details: Understanding interest-only payments helps borrowers plan their finances during the interest-only period and prepare for higher payments when principal repayment begins.

4. Using the Calculator

Tips: Enter the principal amount in dollars and the annual interest rate as a percentage. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What are the advantages of interest-only mortgages?
A: Lower initial payments, improved cash flow, and potential tax benefits for investment properties.

Q2: What are the risks of interest-only mortgages?
A: No equity build-up during interest-only period, potential for payment shock when principal repayment begins, and risk of negative equity if property values decline.

Q3: Are interest-only mortgages available in Canada?
A: Yes, but they are less common than traditional mortgages and typically have stricter eligibility requirements.

Q4: How long do interest-only periods typically last?
A: Most interest-only periods range from 5 to 10 years, after which the loan converts to a principal and interest repayment structure.

Q5: Can I make principal payments during the interest-only period?
A: Most lenders allow additional principal payments, but you should check your specific loan terms for any prepayment penalties.