Interest-Only Mortgage Payment Calculator

What is an Interest-Only Mortgage?

An interest-only mortgage is a type of home loan where the borrower only pays the interest on the loan for a specified period, typically 5 to 10 years. During this time, the principal balance remains unchanged unless the borrower makes additional payments.

Formula for Interest-Only Mortgage Payments

The formula for calculating the monthly payment on an interest-only mortgage is:

\[P = L \times \frac{r}{12}\]

Where:

• P = Monthly Payment
• L = Loan Amount (Principal)
• r = Annual Interest Rate (in decimal form)

Calculation Steps

1. Convert the annual interest rate to a decimal by dividing by 100.
2. Divide the result by 12 to get the monthly interest rate.
3. Multiply the loan amount by the monthly interest rate.

Example

Let's calculate the interest-only payment for a $200,000 loan with a 4% annual interest rate:

1. Convert 4% to 0.04
2. Monthly rate: 0.04 ÷ 12 = 0.0033333
3. Monthly payment: $200,000 × 0.0033333 = $666.67