How to Use an Interest Only Mortgage Calculator
An interest only mortgage calculator will determine what your monthly payments will be at any given moment during the life of an interest only loan. While many people warn about the risks involved in this type of loan, other people praise it for its flexibility during the initial years of the loan agreement. Let's analyze a $100,000 loan in which you have been given the option to pay the interest only.
Mortgage Calculator Figures on a $100,000 Interest Only Home Loan.
We need to keep in mind that an interest only loan works very differently than a regular traditional loan. In this type of scenario, you're given an interest only grace period which could be anywhere from 1 to 15 years. After that grace period the loan payments will increase dramatically and will start to cover interest plus capital.
Let's say current interest rates are 6.5% and we use our interest only mortgage calculator to find out what the monthly payments will be on a 30 year loan with a 10 year interest only grace period. The interest only mortgage calculator will show us that our initial 120 monthly payments will be of $541.67 but will then go up to $745.45 for the 240 months following that period. Extraordinary payments towards capital will reduce the debt amount at any moment.
Many people use an interest only mortgage calculator to analyze a rent vs. buy scenario. If initial payments are less or equal to their current rent amount then buying a home and using any extra income towards extraordinary payments will wisely give them equity in their home and will reduce the overall debt before the higher payments kick in. An interest only mortgage calculator can show them this.