Interest Only Calculator
This interest only loan calculator figures your loan's monthly interest-only payment. Admittedly, it is very simple, but that is because interest only loans are very simple.
If you are looking for something more complex then please check out our full suite of loan calculators here.
Interest Only Loan Mortgage
When refinancing a loan mortgage, homeowners have various options to choose from. However, due to high prices of houses and high interest rates, homeowners choose to take the interest only loan to refinance their loan mortgage. Interest only loan mortgage is the most preferred refinancing method nowadays due to the fact that it has a smaller monthly payment and repayment process is flexible. But before you decide to take this loan option, you should carefully evaluate your finances and understand the risks that are inherent for this option. To help you assess your affordability to take this loan, use the interest only loan mortgage calculator to calculate the monthly loan payment.
What Is An Interest Only Loan?
A normal loan consists of a principal and interest. The principal is the face amount of money owed, while an interest is the cost of borrowing. For the normal type of loan, a borrower pays the principal and the interest each month. But for an interest only loan, the borrower pays only the interest of the loan each month for a certain period of time. The monthly repayments are relatively low since you will not be paying the principal during the interim period. However, after the interest-only period expires, which is usually 5-10 years, you will be required to pay the principal plus the interest. It will be expected that the monthly repayments after the interest only period will be very high. If you do not intend to sell your property before the interest only period expires, you should be prepared to pay the high monthly repayments.
Is It Right For You?
For most people, the interest-only loan is a favorable option especially if they do not intend to keep their property for a longer period. This is also a good option for people who are savvy in financial investing. This refinancing method can free up cash and they can use the money saved for reinvesting. However, if the freed up money is used for your basic needs such as food, children’s education or paying your debts, this might not be a good option for you, unless, you are expecting to receive a big amount of money at the end of the interest-only period. If not, try to review your household budget and calculate how much money you will save after paying the interest-only loan. The interest only loan calculator can help you calculate your monthly repayments. If the result of the calculation does not fit in your budget, try other options of refinancing or delay your mortgage purchase until you’re ready.
What Are The Risks Involved For This Method Of Refinancing?
Just like any other mortgage payment options, an interest-only loan has also an inherent risk. Interest-only loan is very risky if the market price of the property falls the time you want to sell the property. If the sale price of the property is less than the face amount of your mortgage loan, you will incur a loss. The loss incurred is termed as negative equity.
The interest rate of an interest-only loan is higher compared to a normal mortgage loan. The interest rate also varies depending on the market performance. Thus, if the interest rate goes up, your monthly payment also goes up. If you don’t have enough extra cash to cover up the additional payments due to the increase interest rate, you will be at risk of failing to pay the monthly payments. If you fail to pay your monthly payments successively you property will be at risk of foreclosure.
When Is It Beneficial?
Interest only loan can be very beneficial if used in the right situation. This option can offer more value for your money than any other refinancing options if used only in a short term. However, if this is the only amount you can afford to purchase a home, it might be worth assessing again your situation and start looking for other options that has lesser risk.
Interest Only Loan Calculator Terms And Definitions
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