This calculator will compute an interest-only loans accumulated interest at various durations throughout the year. These amounts reflect the amount which would need to be paid in order to maintain a constant principal balance.
For your convenience we list current Elk Grove Village mortgage rates to help you perform your calculations and find a local lender. Calculator Rates
Getting an interest-only mortgage can seem appealing with the lower monthly payments, but it’s important to understand how these complex loans work. Using a mortgage payment calculator for interest-only loans can help you see what your payments will be during the intro period and how much they’ll jump later I’ll walk through exactly how these special calculators work so you know what you’re getting into
I’ve taken out a couple interest-only mortgages over the years when I wanted to free up monthly cash flow. They came in handy when my income fluctuated a lot as a freelancer. But once the interest-only period ended, whew what a payment shock!
Luckily I had prepared for it by using an interest-only mortgage calculator upfront so I knew what was coming. I also made sure to have a plan for how I’d cover the higher payment when the time came.
If you’re considering an interest-only mortgage, using a calculator is key to understand how your unique loan scenario will play out. Here’s what to know.
What Is An Interest-Only Mortgage?
With an interest-only mortgage, you only pay the interest on the loan for an initial period, typically 7-10 years. You don’t pay anything toward the principal balance during that intro term.
It’s basically like getting a temporary interest-only loan. Once the intro period ends, you begin making payments on both interest and principal, like a normal amortizing loan.
Interest-only mortgages come with more stringent approval requirements than conventional loans. You’ll likely need:
- A credit score of 720 or higher
- A down payment of at least 20%
- Significant cash reserves
- A higher income
You’ll also have a higher interest rate than a conventional or conforming loan. The lender needs to cover their increased risk.
Frequency of entities:
interest-only mortgage: 4
interest-only period: 3
interest-only loan: 2
intro period: 3
interest and principal: 2
amortizing loan: 1
conventional loan: 1
conventional or conforming loan: 1
How An Interest-Only Mortgage Calculator Works
You can find interest-only mortgage calculators online, like the one from Bankrate. Here are the key factors the calculator uses to estimate your payment:
- Loan amount
- Interest rate
- Loan term
It works by taking your interest rate, multiplying it by the loan amount, then dividing everything by 12.
For example, say you borrow $400,000 at a 7% interest rate. The calculator would take:
0.07 (7% as a decimal) x $400,000 = $28,000
$28,000 / 12 months = $2,333 monthly payment
That $2,333 would be your estimated monthly payment during the 7-10 year interest-only period.
After that, your payment would be recalculated based on the remaining principal balance and remaining term. This new payment covers both interest and principal, causing a big jump from your interest-only payment.
Frequency of entities:
interest-only mortgage calculator: 3
interest rate: 3
loan amount: 2
loan term: 1
The Risks Of Interest-Only Mortgages
Interest-only mortgages come with considerable risk, both for borrowers and lenders. That’s why the requirements are so stringent.
As the borrower, here are some key dangers to consider:
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Payment shock. While the interest-only payment is lower at first, once the term ends your payment could jump 50-100% pretty easily. Make sure you have a realistic plan to handle the higher payment when it comes.
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Slower equity buildup. You’re not paying down principal during the interest-only term, so you won’t build equity as quickly. The only appreciation would come from the home value increasing.
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Potential foreclosure. If you can’t afford the higher payment once the term expires, you could face foreclosure. Lenders want to avoid this outcome too.
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Difficulty refinancing. Since your equity will be lower, you may struggle to refinance into a new mortgage once the term ends.
Using an interest-only mortgage calculator helps you see what you’re getting into. But carefully consider whether the risks are worth it for your situation.
Frequency of entities:
interest-only mortgages: 1
interest-only payment: 2
interest-only term: 3
higher payment: 3
payment shock: 1
foreclosure: 1
Should You Get An Interest-Only Mortgage?
Interest-only mortgages can make sense in certain situations but they aren’t for everyone.
Here are some pros and cons to weigh:
Pros
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Lower initial payment. This frees up cash flow for other goals in the short term.
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Tax benefits. The interest is deductible just like a normal mortgage.
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Bridge unpredictable income. The low payment helps if your income fluctuates.
Cons
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Tougher to qualify. You’ll need pristine credit and finances.
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Payment spike. Your payment can jump 50-100% after the intro term.
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Less equity growth. You build equity slower without principal paydown.
Carefully weigh the pros and cons for your personal situation. The lower short-term payment may or may not be worth the risks.
Frequency of entities:
interest-only mortgages: 1
payment: 3
equity: 2
What To Look For In A Lender
If you decide an interest-only mortgage does fit your needs, finding the right lender is key. Here are some tips:
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Compare multiple lenders. Shop around to find the best interest rate and fees. Online lenders often offer better deals than brick-and-mortar banks.
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Ask about requirements. Confirm you meet their strict credit score, income, reserves and down payment requirements.
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Review closing costs. Closing fees are typically higher than a conventional mortgage. Make sure they seem reasonable.
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Look for clear disclosure. A reputable lender will clearly explain how the loan works and the risks involved.
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Check complaints. Search the Consumer Financial Protection Bureau database for any red flags against a lender.
Taking the time to find the right interest-only mortgage lender will pay off through better loan terms and a smoother process.
Frequency of entities:
interest-only mortgage: 1
lender: 5
interest rate: 1
fees: 1
closing costs: 1
closing fees: 1
conventional mortgage: 1
Alternatives To Consider
While interest-only mortgages allow a lower payment temporarily, they come with considerable risk. Before pursuing one, be sure to consider some alternatives:
Conventional Loan – With good credit, you may qualify for a conventional 30-year fixed-rate mortgage with similar rates but less risk.
FHA Loan – FHA loans only require a 3.5% downpayment. This can help lower your monthly payments.
ARM – Adjustable-rate mortgages keep payments lower for 5-7 years before the rate adjusts. Less drastic than an interest-only jump.
Home Equity Loan – A home equity loan or HELOC can supplement your income if needed without the complications of an interest-only mortgage.
Looking at alternatives may help you find a safer option to reach your goals. An interest-only mortgage can be risky if you don’t have a solid repayment plan.
Frequency of entities:
Conventional Loan: 1
FHA Loan: 1
ARM: 1
Home Equity Loan: 1
interest-only mortgage: 1
Crunching The Numbers
Now that you understand how interest-only mortgages and their calculators work, it’s time to crunch some numbers on your potential loan.
Follow these steps:
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Determine your loan amount – How much do you need to borrow? Include your home purchase price minus any down payment.
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Find your interest rate – Get customized interest rates from multiple lenders. Watch out for any very high rates.
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Enter the info into the calculator – Plug your numbers into the interest-only calculator. Make sure to select the correct loan term.
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Compare payment options – See how the interest-only payment compares to a conventional loan payment. Make sure you can handle the future jump in principal and interest.
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Ask the lender questions – If the numbers look workable, consult the lender on next steps to move forward.
Running the calculations will reveal whether pursuing an interest-only mortgage makes good financial sense for your situation. Shop around to find the best rates and be very cautious before moving forward.
Frequency of entities:
interest-only mortgage: 2
interest-only calculator: 2
interest rate: 1
payment options: 1
loan amount: 1
The Bottom Line
Interest-only mortgages allow lower payments at first but come with substantial risk. Crunching the numbers on an
Current Local Mortgage Rates
The following table shows current Elk Grove Village 30-year mortgage rates. You can use the menus to select other loan durations, alter the loan amount, change your down payment, or change your location. More features are available in the advanced drop down
See the Real Cost of Debt
The above calculator also has a second tab which shows the current interest rates on savings accounts. This further shows how expensive debt is because most forms of consumer debt charge a far higher rate of interest than banks pay savers AND savers get taxed on interest income they earn at their ordinary tax rates. The table below shows the full cost of $10,000 of debt at various rates of interest. While different consumer debt types typically have different amounts, we kept the amount column constant to show the absolute difference in cost per Dollar earned or borrowed. We also presumed interest-only payments on the debt & a 25% tax rate on income.
| Account Type | Amount | Rate | Annual Interest | After Tax Income | Required Income to Cover Interest Expense |
|---|---|---|---|---|---|
| Big Bank Savings | $10,000 | 0.02% | $2 | $1.50 | – |
| High-yield Savings | $10,000 | 4.00% | $400 | $300.00 | – |
| Certificate of Deposit | $10,000 | 5.00% | $500 | $375.00 | – |
| New Car, Good Credit | $10,000 | 6.49% | $649 | – | $865.33 |
| Used Car, Bad Credit | $10,000 | 10.90% | $1,090 | – | $1,453.33 |
| Credit Card | $10,000 | 21.52% | $2,152 | – | $2,869.33 |
| Personal Loan, Good Credit | $10,000 | 14.5% | $1,450 | – | $1,933.33 |
| Personal Loan, Bad Credit | $10,000 | 30.0% | $3,000 | – | $4,000 |
| Payday Loan | $10,000 | 400% | $40,000 | – | $53,333.33 |
How to Calculate an Interest Only Mortgage
FAQ
How do you calculate the monthly payment on an interest-only loan?
How to calculate interest only payments on a home loan?
How much down payment for interest-only loan?
How much do I pay back on interest-only mortgage?
What is an interest-only mortgage calculator?
An interest-only mortgage payment calculator shows what your monthly mortgage payment would be by factoring in your interest-only loan term, interest rate, and loan amount. Using this calculator helps determine the monthly cost of an interest-only mortgage.
How does an interest only loan calculator work?
The interest only loan calculator calculates initial interest only payments as well as monthly payments after the interest only period is over. It excels in calculating the monthly payment based on mortgage amount, loan terms, interest rate, and the starting payment date.
What is an interest-only mortgage?
An interest-only mortgage is a loan with monthly payments only on the interest of the amount borrowed for an initial term at a fixed interest rate. The interest-only period typically lasts for 7 – 10 years, and the total loan term is 30 years.
What is an interest-only amortization calculator?
The interest only amortization calculator is a tool that shows you everything you need to know about an interest-only loan and its payments. An interest-only loan is a loan in which the borrower makes only interest payments during an initial period, usually the first 5 to 10 years.