An interest only loan offers flexibility to borrowers. During a set term at the beginning of the loan (typically the first five years), the home buyer will pay only the interest of the loan with the option to pay a little more toward the principal. The drawback to this type of loan is that the term of the loan is shorter when compared to other home loans. This means the principal payments, due after the interest only period has ended, will be relatively high. The interest only loan calculator is designed to inform borrowers what their initial interest payments will look like and what the amount of their principal payments will be after the interest only period has ended.

 

In order to plan to use the interest only loan calculator, home buyers should research their available lenders to see what interest only products they offer. When utilizing the interest only loan calculator, you will need to provide information on the loan product you’re thinking about applying for. The information you will need is:

 

• The total amount of the mortgage
• The term of the loan
• The term of the interest only period
• The interest rate
• Prepayment information

Interest only loans offer the ability to make prepayments against the principal in order to lessen the financial impact of the payment increase that borrowers see when the interest only period ends. This is an example of the flexibility of this type of loan. Borrowers can make prepayments on a regular basis or in a lump sum prepayment. When using the interest only loan calculator, you will need to specify prepayment amount and frequency.

 

Some borrowers enjoy the flexibility offered by interest only loans, especially when used to supplement an existing loan, such as when borrowers use interest only loans to cover a minimum down payment and avoid the need for mortgage insurance. Interest only loans can be hazardous, though, since their repayment amount jumps once the interest only period ends. Using an interest only loan calculator is a practical way to evaluate this type of loan to figure out whether it suits you.

Important: This calculator is provided to be use as a guide only and should not be considered a quote, a loan offer, or investment advice. Other criteria may need to be considered, and before taking out a loan you should always consult with your personal financial adviser.