Interest Only Mortgage Calculator - Monthly Savings

Interest-only mortgages are just what they sound like: you pay for your loan in terms of interest only, with very little principal. The benefit is a lower mortgage payment, which makes it more affordable to cover your monthly bills. For many people, this is an ideal type of loan that offers several benefits. It is up to you to determine whether it is the right type of loan for your situation, though. To do that, use an interest-only mortgage calculator, and fully understand how this loan works before jumping into it!

How Does an Interest-Only Mortgage Work?

With a traditional loan, your monthly payment is split. Part of the payment goes to the principal of the loan, the money you actually borrowed. The rest pays the interest on the loan. In most loans, you pay much more interest at the beginning of the loan than principal, and that is what makes lending so lucrative for lenders. With an interest-only loan, you make a very small principal payment or pay interest only. The principal is held off and is to be paid in other ways.

In most cases, people use this type of loan when they do not have a steady income or do not plan to stay in the home very long. For them, the lower monthly payment is well worth it. But there is more to think about. You will still need to pay the principal you borrowed at some point if you plan to ever own the home. Usually the homeowner does this through payments as money becomes available. Other loans require payments at certain times during the lending process, or even a balloon payment at the end of the loan period.

For those who work in sales or seasonal jobs, this type of loan can be helpful. For example, perhaps you sell homes. When you sell a home, you can put more toward the cost of the mortgage, and when you do not have a sale, you can make the interest-only payment. This setup works well for many people because it allows them to make larger payments when they can and smaller payments when they have to. Of course, you do need to meet strict qualifications for this type of loan.

For those not looking to remain in the home for a long period of time, this loan can save money by avoiding principal payments altogether. If you plan to live in your home for just a few years, an interest-only loan can lower your monthly payments considerably so that you do not put more into the home's cost than you need to.

How Much Will It Save You?

When considering an interest-only mortgage, look at what the real benefits of this type of loan will be for you. It is also important to consider carefully how well this loan fits your lifestyle. For many people it is ideal, and it may be for you, too. Here is an example of how much you can save per month with an interest-only loan.

Consider how this will work in your specific situation. The interest rate charged on your interest-only mortgage is based on your specific qualifications. Often, a good credit score is necessary to obtain this type of loan because it shows that you will make your payments. What's more, because the monthly payment is lower, you may qualify for a higher loan amount if you have a good credit score. You should also figure out the right term for you: a longer term lowers the monthly payment but costs more overall, while a shorter term costs more per month but saves you money on the total cost of the home in the long run.

What's important to remember is that saving that amount per year does not mean you will never have to repay it. In fact, you will. If you plan to keep and own your home, you will still need to make principal payments every year or at the end of the lending term. For many others, this type of loan is a good option while they improve their credit score. If you know your credit situation will be better in a year or so, you may be planning to refinance your loan. Paying this lower amount in the meantime can help you accomplish that. You can later refinance the loan to get a better interest rate and a traditional fixed-rate loan.

Learn how well an interest-only loan can work for you, and take the time to secure a loan that fits your overall lifestyle. Use a mortgage calculator to see just how well this type of loan would work for your situation. You may be impressed by how affordable it can be. It can often open doors for those who otherwise may not feel they can afford a home loan, and interest-only loan calculators are readily available to help you see the benefits.