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Mortgage Calculator Payment Interest Only

Interest-Only Payment Formula:

\[ M = P \times r \]

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1. What is an Interest-Only Mortgage Payment Calculator?

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

Purpose: Helps borrowers understand their initial payments during the interest-only period of their mortgage.

2. How Does the Calculator Work?

The calculator uses the formula:

\[ M = P \times r \]

Where:

Explanation: The payment is simply the loan amount multiplied by the monthly interest rate.

3. Importance of Interest-Only Payment Calculation

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

4. Using the Calculator

Tips: Enter the loan amount and annual interest rate. The calculator converts the annual rate to a monthly rate automatically.

5. Frequently Asked Questions (FAQ)

Q1: What is an interest-only mortgage?
A: A loan where you pay only the 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 expecting property appreciation or borrowers with irregular income who need lower initial payments.

Q3: How does this differ from a regular mortgage payment?
A: Regular payments include principal reduction, while interest-only payments don't reduce the loan balance.

Q4: What happens after the interest-only period ends?
A: Payments increase significantly as you begin paying both principal and interest, often through amortization.

Q5: Are there risks with interest-only mortgages?
A: Yes, including payment shock when the interest-only period ends and no equity buildup during that period.

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