Mortgage Calculators for Interest Only Loans

Interest only mortgage products have become increasingly more popular in the past 10 years.  A home loan is interest only when the scheduled monthly mortgage payment is composed of interest only.  Interest only mortgages have the potential for low initial payments because borrowers repay none of the principal for the first several years.  Using an interest only mortgage calculator allows the user to see what the payment difference would be between a fully amortizing home loan that has a monthly mortgage payment of principal and interest each month and an interest only home loan.

Interest only loans allow you to keep your monthly payments low by allowing the repayment of interest over a predetermined period of time.  Monthly payments can change dramatically when the introductory period ends and the borrower must start paying off the principal.  Many people choose these products for paying off debts with higher interest rates, reallocating money to alternative investment vehicles or simply to allowing for the purchase of a higher priced home.  Interest only mortgages are for borrowers who have a valid use for a lower initial required payment, and are prepared to deal with the consequences.  The interest only mortgage calculator helps to show how the monthly payment will change once the interest only payment period ends and the monthly payments will now include the principal portion to pay off the loan as well.  The mortgage calculator can be very handy at calculating this payment change to avoid payment shock once the interest only period of the loan ends.

The mortgage payment calculator can also be employed to calculate how additional payments to the interest only loan will impact the principal balance reduction.  With the interest only mortgage loan program, there is generally no restriction from making additional payments toward your principal each month.  Interest only mortgages simply permit the borrower the flexibility to decide if they want to pay the additional outlay.

There are a wide range of interest only home loan products to choose from.  These products offer many benefits and are subject to a varying degree of risk.  Most interest only loans also come with adjustable interest rates.  For example, it is common to see offers for interest only loans on the already low rate 3/1 and 5/1 adjustable rate mortgages as well as the 15 and 30 year fixed rate mortgage.  The interest only payment period is typically between 3 and 10 years.  After that, the monthly payment will increase, even if interest rates stay the same, because you must pay back the principal as well as the interest fro the remaining term on the loan.  For example, if you take out a 30-year mortgage loan with a 5-year interest only payment period, you can pay only interest for the first 5 years and then both principal and interest over the next 25 years.  Since the loan requires the borrower to begin to paying back the principal, the payments increase after year 5.  The interest only option can be input into the adjustable rate mortgage calculator to shows the results of an interest only adjustable rate mortgage and the impact of both the interest only feature and the rate change feature of the adjustable rate mortgage. 

It is extremely difficult to gauge which direction the financial markets may move in our country.  It is almost impossible to accurately forecast where an adjustable rate payment may be after the fixed term period.  The mortgage payment calculators for adjustable rate mortgages can help look at the payment changes one might expect with different scenarios for interest rates in the future.  Interest only loans do carry higher risks, and borrowers must understand these risks.

Every home loan program has some degree of risk.  Comparing different types of loans is the most important step in choosing the best loan for a mortgage borrower.  Every borrower’s situation is unique, and understanding how loans are structured will help you make the right decision for that borrower’s situation.  Obviously interest only home loans are no different and the home loan borrower should fully consider the risks and rewards of the programs before making a decision.  Mortgage calculators are designed to help identify the risks an outcome of different loan terms including fixed rates, adjustable rates and interest only options for each program.  Identify your goals, and you will be able to identify the right loan to help you reach them.

This entry was posted on Friday, December 12th, 2008 at 10:41 am and is filed under Mortgage Articles. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.