Interest Only Loan Calculator

Interest Only Loans – How They Work

Interest only loans are special types of mortgages where the payment liability is very low in the initial years. The borrower is required to pay only the interest part for a fixed duration. The outstanding principal remains the same. After the completion of the “Interest Only Period”, regular payments start, where both the interest component and the amortized principal is paid.

Merits of Interest Only Loans

Interest Only loans are highly beneficial for borrowers if they plan their finances well and understand the liabilities clearly. They offer numerous advantages over conventional amortization schedules, for example…

  • Buy a more expensive home with a smaller monthly payment
  • To free up money that you have a better use for
  • To keep your monthly obligations smaller
  • To make your own custom amortization schedule

Interest only mortgages allow a borrower to qualify for a higher loan, since the monthly payment requirement is lower in the beginning. However, these debt schemes have caused a lot of pain to people in the weak property market. Many people have opted for buying bigger houses using these loan schemes thinking about the capital appreciation of the housing property. They planned to exit the property before the completion of the “interest only period” and make hefty profits due to capital appreciation.

But their plans were sabotaged by the weakened property markets. Many of them defaulted on their monthly payments and had to go for foreclosure.

Interest Only Loan Calculator

Here we present an Interest Only Loan Calculator, which allows you to calculate your monthly payment requirements in the Interest only period and also the amortization period. It also calculates the total payments to be made in both the periods and also the total interest costs to be born by you.

Inputs Required to be Entered

Following inputs are required to be entered to run this Interest Only Loan Calculator.

  1. Sale Price: The sale price for your property. (NOT the amount of money you plan to borrow.)
  2. Down Payment: The amount of money you plan to put as a down payment on your property.
  3. Period (Years): How long you will pay on this loan.

Interest-Only Period

  1. Interest Rate: The annual percentage rate you will pay for the interest-only portion of this loan.
  2. Length (Years): How long you will pay on the interest-only portion of this loan.

Amortized Loan Period

  1. Interest Rate: The annual percentage rate you will pay for the amortized portion of this loan.
  2. Length (Years): After the interest-only period, the rest of ‘Length of Loan’ is the amortized length.

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Output Results Calculated by Housing Expense Ratio Calculator

Following results will be given after calculations.

  1. Interest Only Period – Monthly Payment: The amount required to be paid each month during the interest-only period.
  2. Amortized Loan Period – Monthly Payment: The amount required to be paid each month during the amortized loan period.
  3. Sum of Payments: The total of all payments to be made by you in both interest only period as well as amortized loan period.
  4. Interest Costs: The total of all interest payments made by  you in both interest only period as well as amortized loan period.

 

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Disclaimer

Lots of approximations and assumptions have been made while developing the calculators.

Please make your own calculations before making any financial decision.