Home
Back
Interest Only Mortgage Payment Formula:
| From: | To: |
Interest only mortgage payment is a type of mortgage where the borrower pays only the interest on the principal balance for a certain period, without reducing the principal amount. This results in lower initial payments compared to traditional amortizing mortgages.
The calculator uses the interest only mortgage payment formula:
Where:
Explanation: The formula calculates the monthly interest payment by converting the annual interest rate to a monthly rate and applying it to the principal amount.
Details: Calculating interest only payments helps borrowers understand their initial payment obligations and plan their finances during the interest-only period of their mortgage.
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 interest only mortgages?
A: Lower initial payments, potentially better cash flow management, and opportunity to invest the savings elsewhere.
Q2: What are the risks of interest only mortgages?
A: Principal balance doesn't decrease during interest-only period, potential for payment shock when principal payments begin, and risk of negative equity if property values decline.
Q3: How long do interest only periods typically last?
A: Interest only periods usually range from 5-10 years, after which the loan converts to a fully amortizing payment.
Q4: Are interest only mortgages suitable for everyone?
A: They are best suited for borrowers with irregular income, those expecting future income increases, or investors who plan to sell the property before the interest-only period ends.
Q5: What happens after the interest only period ends?
A: The loan begins to amortize, and monthly payments increase significantly as they now include both principal and interest components.