1. What Are Interest Only Mortgage Payments?

Interest only mortgage payments cover just the interest charges on the loan for a set period, without paying down the principal. This results in lower initial payments but requires paying the full principal later.

2. How Does the Calculator Work?

The calculator uses the interest only payment formula:

Where:

• \( PV \) — Present value or loan amount (USD)
• \( r \) — Monthly interest rate (annual rate ÷ 12)

Explanation: The payment equals the loan amount multiplied by the monthly interest rate.

3. Importance of Interest Only Payments

Details: Understanding interest only payments helps borrowers evaluate short-term affordability versus long-term costs, and compare different mortgage options.

4. Using the Calculator

Tips: Enter the loan amount in USD and annual interest rate in percentage. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What are the advantages of interest only mortgages?
A: Lower initial payments, potential tax benefits (in some countries), and flexibility for those expecting higher future income.

Q2: What are the risks?
A: Payments increase significantly after interest-only period ends, no equity build-up during interest-only period, and potential for negative amortization.

Q3: How long do interest only periods typically last?
A: Usually 5-10 years, after which the loan converts to a standard amortizing mortgage.

Q4: Are interest only mortgages good for investment properties?
A: They can be beneficial for investors who prioritize cash flow and plan to sell or refinance before the interest-only period ends.

Q5: How does this differ from a traditional mortgage payment?
A: Traditional payments include both principal and interest, building equity over time, while interest-only payments don't reduce the principal balance.