# Interest-Only Mortgage Calculator

Table of contents

What is an interest-only mortgage?Pros and cons of interest-only loans?Interest-only mortgage payment exampleThis interest-only mortgage calculator is a tool that will help you find **the monthly payment** if you were to take out this specific type of mortgage loan. The result shows you the amount of interest you have to pay.

The interest-only mortgage payment calculator **can be used on different types of interest-only loans or to calculate your interest value** on other loans or mortgages. If you are interested in the topic, go to the next section to find out more about what the interest-only mortgage is.

## What is an interest-only mortgage?

An interest-only loan or mortgage is a type of loan that makes **the borrower pay only interest** for the provided period. In other words, you are not paying off your debt (principal value), just the interest.

As only interest is paid each month, **your debt remains the same.** After the specific period is over, you will have to pay back your debt either as a lump sum or monthly with different terms.

By opening the **"Interest-only period"** section of the calculator, you can also provide the length of the interest-only loan period and discover how much you will have to pay for the entire time with the provided conditions.

## Pros and cons of interest-only loans?

Here are the **Advantages** of an interest-only mortgage loan:

- The
**monthly payments are smaller**than a typical mortgage over the period without the principal. - The mortgage interest rates are often small. You can
**invest the money you saved**from not paying the principal value. The savings calculator may help you estimate potential income. - Managing your household's budget is easier due to
**small and stable**interest-only mortgage payment. - If you expect that
**your salary will increase with time**, it will be easier for you to pay off the debt in the future.

There are, however, some **disadvantages** to an interest-only mortgage loan:

- As the principal value is not paid, your mortgage remains the same —
**your debt does not decrease**. Interest-only loans**do not amortize**during the interest-only period. You can read more about this process in the mortgage amortization calculator if you're not quite familiar with it. - You will still have to
**repay the principal value**of your mortgage. It means that you will need to pay**a higher amount each month**after the interest-only period (where you pay back the interests and principal together) or pay off the principal as a**lump sum**. - Having a high amount to pay in the future
**may be risky**as you cannot be sure about your future situation. For example, becoming unemployed or being faced with unexpected additional costs may lead to financial troubles.

## Interest-only mortgage payment example

Imagine you are planning on buying a new house, and, for that reason, **you need to borrow $350,000**. According to the terms of your mortgage, it will be an interest-only loan **during the first ten years**, with an annual **interest rate of 4%**.

The next step is to calculate your payment for this period using the interest-only mortgage calculator. If you want to calculate **the monthly payment**, choose this option in the payment frequency field.

In this example, we are calculating **monthly payments based on the yearly interest rate**. It means that we have to divide 4% by 12 months.

`Yearly payment = Loan amount × Annual Interest rate`

`Yearly payment = $350,000 × 0.04 = $14,000`

`Monthly payment = $350,000 × 0.04 / 12 = $14,000 / 12 = $1,166.67`

Based on the example terms, you will have to **pay $1,166.67 each month for the next ten years**. After this period, you will **still have a $350,000 debt** that has to be paid off in a lump sum or with higher monthly payments.

If you'd like to compare it with a regular mortgage, check the mortgage calculator.