Interest Only Mortgage Calculator - Paying Mortgage Per Time
Mortgage is a compulsion for every independent, or semi-dependent person. Everyone could use a roof over their heads and most importantly, a cozy bed to rest their backs at night.
But just like everything else on earth, it comes at a price. That price could be summed up in different perspectives, as a mortgage. You could obtain a mortgage loan, contract a mortgage for a suitable amortization and pay with time, or you could obtain an interest only mortgage.
While there are plethoras of options, the interest-only mortgage may pose a little bit of difficulty for a new mortgage owner. More so, the calculations may prove cumbersome to comprehend and complex, thus raising the need for a mortgage calculator.
Our interest-only mortgage calculator is otherwise known as Interest only loan payment calculator.
It can help you in calculating, tracking, understanding and determining the amounts due for payments in an interest only mortgage; why it is due and when. Also, an interest-only mortgage calculator can help in showing the interest rates that every default attracts and how to handle them better.
First things first. Let’s understand what is an interest-only mortgage loan?
What is interest only mortgage calculator?
An interest only calculator can also be regarded as an Interest payment calculator which can be used to determine, monitor and calculate an interest-only mortgage. It runs with a formula that allows you easily navigate, and calculate your interest mortgage yearly and per time.
An interest-only mortgage assists you along your journey to pay your interest only loan payment promptly.
What is interest only mortgage?
An interest-only mortgage is a kind of home loan which allows the mortgage holder to pay only the interest accruable on a mortgage for a specific period of time. In such a mortgage, during the lifetime of the interest only agreement, the mortgage seller is only entitled to the payments of the interests split in between years.
One factor you must remember before accepting an interest-only mortgage is that no matter how long it runs the principal sum (home price) remains unpaid. If, for instance, you are supposed to pay it for as long as ten years, at the end of the interest-only period, you will still be liable to pay the principal fee!
Below are some case scenarios for an easier comprehension of interest only mortgages:
Case Scenario 1
Mr. A takes a mortgage with a home price of $200,000 in 30 years and an interest rate of 4% on a yearly basis. His total principal debt is $200,000 but the interest sum of 4% would make a total of about $24,000 for all things being equal.
Now, an interest-only mortgage would devise a means for the interest rate to be defrayed before the principal home price.
So, if Mr. A is required to pay $4000 yearly for the period of 6 years, every dime he pays for that 6 years will go into the interest that is expected of him. After 6 years, he can then decide to proceed with the mortgage by starting to pay the home price.
Case Scenario 2
Miss B who is a student at Arden University and a receptionist worker at a 5-star hotel may need an apartment from where she could easily reach work and study too. She may pick up an interest only mortgage which allows her to pay the interest on the mortgage alone.
When her mortgage elapses, she could decide to renew the interest only transaction, or to quit the apartment, or she may decide to purchase it by entering the home price.
Case Scenario 3
Mr. C who is a new wig at a bar is trying to procure a decent home for his family.
He takes on an interest only mortgage which requires him to pay $6,000 yearly for the period of 10 years. His house is worth $500,000 in 30 years (at the standard interest rate of 4%).
Mr. C does this because he believes that although he may not be able to pay the actual home price now, his income would topple in the next few years and he would be able to pay up. In this scenario, Mr. C is using interest-only mortgage to defer original payment and influence payment rate.
Pros and cons of interest only mortgage
Benefits of Interest Only Mortgage
- Interest only mortgages are often easier to pay because they involve the splitting of only the interest sum and not the home price.
- Interest-only mortgages allow the deferment of the mortgage sum and the use of property simultaneously. It operates like a long-term lease, wherein decisions can still change with time.
- Interest only mortgages protect the interest of the mortgage seller and ensure that ownership remains with him.
- Interest only mortgages are a suitable option if you are interested in short-term possession of a home.
Disadvantages of Interest Only Mortgage
- Interest only mortgages are not cost effective.
- It increases the interest rate and makes the payment of the home price to become more cumbersome later.
- With interest-only mortgages, the home price remains untouched for a very long time.
- It is not very advisable for a mortgage with long amortization period. The mortgage runs but yet, the holder cannot be regarded as a homeowner yet.