In the early years of the loan, you may require some flexibility because of your financial position which may not be as stable. The best arrangement that can help you achieve this is the interest only mortgage because it offers a high degree of flexibility to borrowers. With this plan, you are usually flexible such that you can pay only interest or decide to pay some part of the loan if this is the best option for you. But you need to bear in mind that after a certain period of making interest only payments, you will be required to pay the outstanding amount within a relatively shorter period of time which results in substantial increase in the repayments.
The interest only calculator will always help you specifically to get the exact interest of the loan and also be able to examine the impact of the principal payment. In order to use the interest only calculator successfully, you need to have perfect understanding of some relevant terms whose values are used to make the necessary calculations.
Term of loan: This is the total number of years within which you will make all your payments to the loan. The calculator works on the assumption that after the expiry of the interest only period, the monthly repayments are increased in order to allow for amortization of the remaining balance over the rest of the remaining years. This ensures that the entire amount is paid by the end of the arranged period.
Mortgage amount: It is the original balance of your mortgage or that which is expected at the end of the arrangement.
Interest only period: This is the number of years required to make the interest only payments. After this period, the outstanding balance will be amortized through increased payments for the remaining years.
Interest rate: The loan’s annual interest rate
Total payments: The total of all the monthly payments made over the full term, assuming no prepayment of principal.
Total interest: The sum of all interests paid over the full term, assuming no principal is paid
Monthly payment: The initial monthly payment you make (only the interest on the loan balance)
Type of prepayment: Frequency of payment which include monthly, annually, none and one time payment.
Prepayment amount: This is the amount that will be prepaid on the loan, based on the prepayment type and applied to the principal amount.
Start with payment: The payment number (amount) that your prepayments will commence with.
Savings: The total amount of interest you will end up saving by prepaying your loan.