An interest only mortgage allows you to make monthly payments that include only the interest applied to the loan. For a set amount of time, generally five years, you will pay only interest, until the time when you will begin making both principle and interest payments.
To find out if this type of loan could help you to save substantially on your monthly payment, use the following information on the Interest Only Mortgage Calculator.
- Enter the amount of the loan you plan to borrow. Do not include any down payments or points you will pay here, but rather just include the amount of money you are borrowing from the lender.
- List the annual interest rate. If you have not obtained a mortgage loan quote yet, do so and apply that rate here. You can also just use the current average interest rate lenders are charging.
- List the term of the loan in years. This is the length of time in which you will pay off the loan.
Once you enter this information and click calculate, you will have some very specific results to consider. You will find out what your interest only monthly payment will be. You can then compare this to a traditional, fully amortized payment. The calculator will also tell you what your monthly savings will be.
A fully amortized schedule is one that lists the payment broken down to pay both the principle (the amount you borrowed) and the interest (the fee for using the loan.)
This is the way most conventional loans are factored. The interest starts higher initially and falls as the principle balance falls. In comparison, the interest only mortgage lists an initial period where you pay only towards the interest charges.
Keep in mind that these terms will differ. If you need a lower monthly payment, consider purchasing a lower priced home, or extending the length of the loan's term.
In many cases, an interest only mortgage loan can help you to have a substantially lower monthly payment initially, but do compare the options available from several lenders to determine which can offer you the best interest rates possible. These factors play a role in how much interest you will pay overall. |
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