What is an Interest Only Calculator?

An interest only calculator can help you decide if an interest only loan is right for your financial situation. Interest only loans have become popular ways to help people purchase a home. By paying interest only, your monthly payment will be lower at the beginning of the loan. However, make sure you won’t run into financial trouble down the road when the monthly payments increase. An interest only calculator can provide you with an instant snapshot of what you can expect to pay with an interest only loan. You can then compare that with the monthly payment for a conventional amortized home loan.

Calculating the Interest Only Payment

Many financial websites have interest only calculators that you can use free of charge. All you need to know to calculate the monthly interest only payment is the total mortgage amount, the interest rate and the term or length of the loan. When you enter these figures into the calculator, it will show what the monthly payment would be. Some calculators also include the monthly payment for a fully amortized loan so you can compare the two. Others even calculate the difference between the two types of payments so you can see how much you’re saving each month by paying only interest.

Pros and Cons of Paying Interest Only

Before signing an interest-only loan, you can use the interest only calculator, and then decide if that type of loan is right for you. An interest only loan can be advantageous if you have fluctuating income. During the lower-income times, you’ll have a smaller monthly payment. When your income increases, you can pay some of the principal down. In conventional loans, banks do the amortization for you. With an interest-only loan, you can calculate an amortization schedule that fits your financial situation. However, when you pay only interest, you don’t build equity in your home. You also run the risk of losing value in your home.