Interest-Only with Additional Payments Calculator Interest-only mortgages are set up in a way that allows the borrower to pay only the interest in the beginning of the loan. The entire monthly mortgage payment at this time goes to interest. Although the borrower enjoys the benefits of smaller payments during this stage, no equity is built up in the home.
This calculator will show you exactly how much you can save on interest by making a small increase in the amount that you pay for your mortgage each month. You simply enter all of the required information, and the calculator will do the figuring.
Typically, the interest-only period of the loan is set at 5 or 10 years. The longer the term for the interest-only part of the loan, the greater the amount of money paid to the interest on the loan. If you can select the shorter of the terms, you will save money by reducing the amount of interest you pay over the life of the loan.
This interest-only with additional payments calculator can show you that you can reduce the amount of total interest that you pay on this type of mortgage simply by making prepayments. Prepayments can be made at any time during the loan, but a routine of making an additional payment toward the principal with the monthly payment is an excellent way to go about it.
In fact, you can decide to change the amount that you prepay from month to month. However, for the purpose of calculating the amount of savings that you realize with prepayments, a single figure is used. If you consistently pay that amount or more each month, then you will save, at the very least, the amount shown.
The prepayments do not influence the size of the monthly payments. They remain at a set figure until after the interest-only period has passed. At that time, the monthly mortgage payments will increase since the principal repayment is now included in the monthly payments.
Even though prepayments will not reduce the size of the monthly payments, they will reduce the principal of the loan. This means that each month you get a bit closer to paying off the loan. Additionally, the borrower can begin to build up equity in the home. The more you pay ahead on your mortgage, the smaller the chunk of paid interest that accumulates.
Calculator Legend
- Amount: Enter the amount of the borrowed money.
- Interest Rate: Enter the rate of interest that is associated with the loan.
- Length: Enter the number of years listed as the term for the loan.
- Additional Payment: Enter the amount of the additional payment that will be made.
DISCLAIMER: There is NO WARRANTY, expressed or implied, for the accuracy of this information or it's applicability to your financial situation. Please consult your own financial advisor.
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