Interest-Only Mortgages

As a rule, paying off a conventional mortgage involves a complete amortization of the mortgage Principal as well as Interest payments. In most cases the loan balance gets brought to zero by the end of the loan term, i.e. the loan is Fully-Amortized.

An Interest-Only Mortgage, however, implies no amortization. The Principal of the loan remains the same throughout the whole term of an Interest-Only Mortgage, i.e. your debt to the lender does not get paid off. You do have to make period payments, though. Principal excluded, they are considerably lower compared to conventional loan period payments, because you pay only the Interest on your loan. The relatively small size of Interest-Only period payments makes them comparable to paying the rent. You can even consider buying a home on Interest-Only Mortgage terms rather than renting it. Even more so if you expect your financial situation to improve in the future to the state, when you will be able to actually pay off the loan. If you buy a property in a dynamically developing increasingly popular area, its rising market value may cover your loan expenses. However, we strongly recommend you never rely on simple luck in a matter like this! Always do a thorough investigation on the price of the property and its dynamics before buying!

The Mortgage Calculator can help you estimate the payments you have to be prepared for with an Interest-Only Mortgage. On the one hand, the calculation is quite simple – you pay the amount determined by the Interest Rate (may vary with time) and the loan balance (stays the same throughout the whole Interest-Only term). On the other hand, you still have an option to make extra payments and try to amortize your loan. If your income is seasonal or uneven throughout the year and you are disciplined enough to take care of regular extra payments yourself – this kind of mortgage can be your best choice.

The Mortgage Calculator offers you a special template – Interest Only Mortgage. The template provides an Interest Only Term field, where you can specify the period of time, during which you make no Principal Payments. When this period is over, your payments are calculated as a Fully-Amortized Loan. The Interest Rate can be either fixed or adjustable. In the latter case, use the wizard or set the Rate manually directly in the Amortization Schedule Table.