calculate interest only mortgage payment
"Interest Only" Loan Calculator
On August, 2012, this calculator was extensively re-written.
For those who wish to see the "old version", please click here.
An "interest only loan" allows a person to pay a lower monthly payment at the beginning of the loan in order to save money (or to anticipate a larger salary) so that a higher monthly payment is more affordable later in the loan.
Scroll down for an example.
After clicking "CALCULATE", we see that the standard mortgage payment is $1,663.26 per month and the "interest only" monthly payment is $1,458.33 which is $204.93 lower.
After 5 years, the standard mortgage payment total is $99,795.60 and the 5 year "interest only" payment total is $87,499.80, saving us $12,295.80 when using the interest only mortgage.
But is this savings worth it?
1) After 5 years of interest only payments, you have absolutely zero equity in your house. To put this in plain English, after 5 years, how much of your house is actually yours?
2) After you have enjoyed 5 years of "saving" $12,295.80, you make up for this for the next 25 years with a monthly payment that is now $103.69 higher ($1,766.95 minus $1,663.26) than the standard payment.
To sum up, in this case, the interest only mortgage costs $18,811.20 more ($617,584.80 minus $598,773.60) than the standard mortgage.
That $18,811.20 is the price you pay for the five years of lower mortgage payments.
This higher 30 year total is something to consider if you are thinking of getting an interest only mortgage.
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How to calculate an Interest Only mortgage payment?
If you are taking an Interest-Only mortgage, or a Pick-a-Pay with Interest-Only payment option you may need to know how to calculate an interest only mortgage payment.
Basically, you are advised to use a web calculator for interest only mortgage payments. And, your lender is supposed to provide you with a spreadsheet with your interest only mortgage payment and how it is going to change over the years, and after loan recalculation.
You need the loan amount, interest rate and term to calculate the interest only payment for a mortgage using interest only mortgage calculator. For example, if you borrow $200,000 at 7% for 30 years your interest only payment will be around $1208. The fully amortizing payment is $1364.
A pure interest only mortgage will usually allow interest only payments for 5 or 10 years and there may not be any negative amortization. However, with Option ARMs it is very possible that negative amortization will occur, the loan will be recast and a fully amortizing payment will be required.