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Interest Only Payment Formula:
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An interest-only mortgage is a loan where the borrower pays only the interest for a set period, typically 5-10 years. After this period, payments increase to include both principal and interest. This calculator helps estimate the initial interest-only payments including property taxes and insurance.
The calculator uses the following formula:
Where:
Explanation: The calculator breaks down your monthly payment into three components: the interest portion, the monthly property tax amount, and the monthly insurance premium.
Details: While interest-only payments may seem low, the true cost of homeownership includes property taxes and insurance. These can significantly impact your monthly housing expenses and should be factored into your budget.
Tips: Enter the loan amount in USD, interest rate as a percentage, and annual amounts for property taxes and insurance. All values must be positive numbers.
Q1: What happens after the interest-only period ends?
A: Payments increase significantly as you begin paying both principal and interest, typically over the remaining loan term.
Q2: Are interest-only mortgages a good idea?
A: They can be beneficial for certain borrowers (like those with irregular income) but risky if home values decline or income doesn't increase as expected.
Q3: How are property taxes calculated?
A: Taxes are based on local assessment rates and your home's value. Check with your local tax assessor for exact rates.
Q4: What insurance is included?
A: Typically homeowner's insurance, but some borrowers may also need flood or earthquake insurance depending on location.
Q5: Does this calculator account for PMI?
A: No, if your down payment is less than 20%, you'll likely need to add private mortgage insurance (PMI) to your monthly payment.