Interest-Only Calculator One thing that every first time homeowner wants to know is how much his or her mortgage is going to cost. Mortgage calculators make this task easy for potential homeowners. All you need to do is enter a few relevant details into the appropriate calculator fields. Find out what you want to know fast and easily.
With this calculator, you can determine out how much your monthly payment will be during the interest-only phase, as well as the total cost of interest over the life of the interest-only mortgage. Additionally, you can find out how much your monthly payment will be with a conventional mortgage, as well as the total cost of the mortgage, including the principal and the interest over the life of the mortgage.
What exactly is an interest-only loan? An interest-only loan is one in which the initial payments are smaller simply because they only include the interest due on the loan. After a predetermined amount of time, usually 5 or 10 years, the monthly payments will become substantially larger to include the portion of the principal that is now due and payable.
Although you reap the benefits of smaller payments during the early years of the loan, the principal never decreases at that time. Therefore, when the principal comes due, you are still paying the interest on the total amount due. Moreover, you do not build up any equity on the home during the interest-only phase of the mortgage.
Unfortunately, the total cost of an interest-only loan tends to be quite a bit higher than a conventional mortgage. One way to minimize this would be to limit the term for the interest-only phase to the shortest number of years offered, provided this is financially feasible to you.
The flexibility to the borrower provided by an interest only loan is one that not every homeowner will appreciate. Individuals who have unstable income, such as sales representatives, can appreciate the smaller payments in the early years of the loan while they are getting established in the world of sales. Likewise, individuals who are expecting a large inheritance or financial windfall due to sale of another property might also enjoy the smaller initial payments that allow them a bit more financial freedom than conventional loans.
Calculator Legend
- Amount: Enter the amount of money that is being borrowed with the loan.
- Interest-Only Rate: Enter the interest rate charged with the interest-only loan as a percentage.
- Conventional Loan Rate: Enter the interest rate charged with the conventional loan as a percentage.
- Length: Enter the number of years that the loan will be held.
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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