Interest-Only Mortgage Calculator
Calculate interest-only mortgage payments, compare with traditional mortgages, and understand the long-term costs. Interest-only loans offer lower initial payments but higher total costs.
Payment Breakdown
Cost Comparison
Loan Timeline
Payment Schedule Overview
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Understanding Interest-Only Mortgages
An interest-only mortgage allows borrowers to pay only the interest on their loan for a specified period, typically 5-10 years. After this period, payments increase significantly as principal repayment begins.
How Interest-Only Mortgages Work
- Interest-Only Period: You pay only interest, principal balance remains unchanged
- Payment Adjustment: After interest-only period, payments increase to include principal
- Loan Terms: Typically 5-10 year interest-only periods with 20-30 year total terms
- Risk Factors: Higher total interest costs and payment shock when principal payments begin
Pros and Cons
Advantages
- Lower initial monthly payments
- More cash flow for other investments
- Potential for higher loan amounts
- Flexibility during interest-only period
Disadvantages
- Higher total interest costs
- Payment shock when principal payments begin
- No equity buildup during interest-only period
- Risk of negative amortization in some cases
Who Should Consider Interest-Only Mortgages?
- Real Estate Investors: Those expecting property value appreciation
- High-Income Borrowers: Who can afford higher payments later
- Business Owners: Needing cash flow for business investments
- Short-Term Owners: Planning to sell before payments increase
Risk Considerations
- Payment Shock: Significant increase in monthly payments
- Interest Rate Risk: Variable rates can increase payments
- Refinancing Risk: May not be able to refinance when payments adjust
- Equity Risk: No equity buildup during interest-only period
Important: Interest-only mortgages are complex financial products that may not be suitable for all borrowers. Consider your financial situation, risk tolerance, and long-term plans before choosing this loan type. Consult with a financial advisor or mortgage professional.