Interest-Only Mortgage Calculator

Interest-Only Mortgage Calculator

How the Interest-Only Mortgage Calculator Works:

The Interest-Only Mortgage Calculator is a tool that allows you to calculate the monthly payments for a mortgage during two distinct phases:

  1. Interest-Only Phase: Where you only pay interest on the loan.
  2. Principal + Interest Phase: Where you pay both interest and the loan’s principal.

Input Fields:

  1. Mortgage Amount ($): This is the total amount you are borrowing for the mortgage.
    • Example: $250,000
  2. Mortgage Term: This is the total length of the mortgage. You can enter this in months or years.
    • Example: 240 months (20 years)
  3. Annual Interest Rate (%): This is the interest rate on the mortgage per year.
    • Example: 5.125%
  4. Interest-Only Term: This is the period in which you will only make interest payments. You can enter this in months or years.
    • Example: 5 years

How It Works:

  1. Interest-Only Phase: During the interest-only phase, your payment only covers the interest. The formula to calculate the interest-only payment is:

    Interest-Only Payment=Mortgage Amount×(Annual Interest Rate12×100)\text{Interest-Only Payment} = \text{Mortgage Amount} \times \left( \frac{\text{Annual Interest Rate}}{12 \times 100} \right)

    Example: For a mortgage of $250,000 at an annual interest rate of 5.125%, the monthly interest-only payment would be calculated as:

    Interest-Only Payment=250,000×(5.12512×100)=1,067.71 USD\text{Interest-Only Payment} = 250,000 \times \left( \frac{5.125}{12 \times 100} \right) = 1,067.71 \text{ USD}

    In this phase, you do not pay off any part of the loan principal, so the balance of your loan remains unchanged.

  2. Principal + Interest Phase: After the interest-only term ends, you will begin making payments that include both the principal and interest. The formula to calculate the principal + interest payment is:

    Principal + Interest Payment=Mortgage Amount×Monthly Interest Rate1−(1+Monthly Interest Rate)−Remaining Term\text{Principal + Interest Payment} = \frac{\text{Mortgage Amount} \times \text{Monthly Interest Rate}}{1 – (1 + \text{Monthly Interest Rate})^{-\text{Remaining Term}}}

    Where:

    • Monthly Interest Rate is the annual interest rate divided by 12.
    • Remaining Term is the total mortgage term minus the interest-only term, converted into months.

    Example: After a 5-year interest-only period (60 months) on a 20-year mortgage (240 months), the remaining term would be 180 months. The monthly payment for principal and interest would be calculated as:

    Principal + Interest Payment=250,000×0.00427081−(1+0.0042708)−180=1,993.30 USD\text{Principal + Interest Payment} = \frac{250,000 \times 0.0042708}{1 – (1 + 0.0042708)^{-180}} = 1,993.30 \text{ USD}

How to Use the Calculator:

  1. Enter the Mortgage Amount: For example, $250,000.
  2. Choose the Mortgage Term: For example, 240 months (or 20 years).
  3. Input the Annual Interest Rate: For example, 5.125%.
  4. Set the Interest-Only Term: For example, 5 years (or 60 months).

Example Calculation:

Let’s assume the following input:

  • Mortgage Amount: $250,000
  • Mortgage Term: 240 months (20 years)
  • Annual Interest Rate: 5.125%
  • Interest-Only Term: 5 years (60 months)

Result:

  • Interest-Only Payment: $1,067.71 per month for the first 5 years.
  • Principal + Interest Payment: $1,993.30 per month for the remaining 15 years (180 months).

This provides a clear understanding of what you’ll be paying during each phase of the mortgage and helps in financial planning.

See Also:
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