1. What is an Interest Only Mortgage Calculator?

Definition: This calculator computes the monthly payment for an interest-only mortgage loan where you only pay the interest for a set period.

Purpose: It helps borrowers understand their initial payment obligations before principal payments begin.

2. How Does the Calculator Work?

The calculator uses the formula:

Where:

• \( M \) — Monthly payment (USD)
• \( P \) — Loan principal (USD)
• \( r \) — Monthly interest rate (decimal)

Explanation: The monthly payment equals the loan amount multiplied by the monthly interest rate (annual rate divided by 12).

3. Importance of Interest Only Calculations

Details: Understanding interest-only payments helps with budgeting during the initial loan period and comparing different mortgage options.

4. Using the Calculator

Tips: Enter the loan amount and annual interest rate. The calculator will show the interest-only monthly payment.

5. Frequently Asked Questions (FAQ)

Q1: What is an interest-only mortgage?
A: A loan where you only pay interest for an initial period (typically 5-10 years), after which you pay both principal and interest.

Q2: When are interest-only mortgages used?
A: Often used by investors, borrowers expecting higher future income, or those with irregular income patterns.

Q3: How does the payment change after the interest-only period?
A: Payments increase significantly as you begin paying both principal and interest over the remaining term.

Q4: What happens to the principal during the interest-only period?
A: The principal remains unchanged unless you make additional principal payments.

Q5: Are interest-only mortgages risky?
A: They can be, as payments increase after the initial period and you're not building equity during the interest-only phase.