Interest-only mortgage calculator
Last updated: January 1
What is an interest-only mortgage?
How to use an interest-only mortgage calculator
Using the interest-only mortgage calculator is a straightforward process. Start by entering the information about the home you are interested in purchasing, then you can enter the details of your interest-only mortgage and the details for a comparable traditional loan. The calculator then shows the total cost difference between a traditional and interest-only mortgage.
The ‘Show details’ panel will show you a breakdown of the cost for your interest-only loan, traditional loan and remaining term on the interest-only loan. At the bottom of the section with your breakdown you will see three titles: Cost Difference, Monthly Payments and Amortization. Selecting these tabs will give you more information about your estimate.
Understanding the calculator results
Once you've entered the necessary information into the interest-only mortgage calculator, it’ll provide you with valuable insights into your financial situation, but it’s important to understand the terms used in the result panels. Here is what each means by section.
The cost difference screen will tell you about the cost difference between an interest-only mortgage and a traditional mortgage, according to the details you’ve entered. The dark blue bar represents the difference. By selecting the chart symbol above the section, you can see this information in a table below the bar chart.
The bar chart in this section shows three values:
- The monthly payments for the interest-only period on the loan
- The monthly payments on the remaining term after the interest-only period is over
- The monthly payments on a traditional mortgage
Each bar has three sections marked in navy, dark blue and light blue. The navy blue represents the monthly principal and interest payments. The dark blue represents your private mortgage insurance. And the light blue represents any taxes and/or insurance payments.
This screen gives you an estimated payment schedule based on the information you entered for an interest-only mortgage and the payment schedule for a traditional mortgage. This graph shows what you pay monthly, what is accounted for within that monthly payment and how it impacts your total interest and balance. You can use this to gain a more in-depth understanding of your mortgage payments and what it will mean for your financial situation month by month.
Benefits of using an interest-only mortgage calculator
Utilizing an interest-only mortgage calculator offers several benefits that can help you make more informed decisions:
- The calculator provides estimates of your monthly payments, helping you budget effectively and plan for future expenses.
- By understanding the financial implications of an interest-only mortgage, you can assess your ability to afford the loan both during the interest-only period and afterward.
- You can use the amortization charts to understand what your loan means to your financial bottom line each month.
- The calculator allows you to directly compare different loan options and see how they impact your finances. This knowledge empowers you to choose the mortgage that aligns with your goals and financial situation.
Who benefits from interest-only mortgages?
Interest-only mortgages are not suitable for everyone, but they can be advantageous in specific situations:
High-income earners with irregular cash flow
For individuals with fluctuating income, an interest-only mortgage offers flexibility during the interest-only period, allowing them to manage their finances more effectively, according to Mortgage Professional America Magazine.
First-time homebuyers expecting income growth
First-time homebuyers who anticipate an increase in income over time may find an interest-only mortgage beneficial. It allows them to make lower initial payments and adjust to higher payments in the future.
Borrowers with short-term ownership plans
If you plan to own a property for a short period, an interest-only mortgage can be advantageous, as it offers lower monthly payments during the time you expect to own the property.
Is an interest-only mortgage right for you?
After exploring the features and benefits of an interest-only mortgage, it's important to evaluate whether it aligns with your unique financial situation and goals. Consider factors such as your income stability, long-term plans and risk tolerance before making a decision. Consulting with a mortgage professional can provide additional guidance in determining the right mortgage option for you.
By utilizing this interest-only mortgage calculator and understanding the intricacies of these loans, you can navigate the mortgage landscape with confidence and make informed financial decisions that align with your goals.