How to Calculate an Interest-Only Mortgage Payment
Interest-only loans work well for people with a guaranteed cash flow of future income because the borrower has more control over when he pays down the principal. This causes the later payments to be higher. Early payments can save thousands in interest payments in the long run, so pay additional principal payments whenever possible. Interest-only loans also allow borrowers to afford larger amounts.
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Instructions
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Multiply the remaining mortgage by the interest rate. Divide this amount by the amount of payments per year. Use 12 to represent a monthly payment schedule. This tells you the minimum amount you have to pay each month. This does not include any principal payment.
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Make sure that you have deducted your previous payments from the mortgage total. Make sure you deduct the principal paid and not the interest amount.
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Verify that you are using the correct interest rate. Fixed interest rates stay the same throughout the entire mortgage duration. An adjustable rate mortgage fluctuates based on the prime interest rate and a negotiated margin rate.
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Tips & Warnings
Pay off as much of your principal payment as possible. Compound interest means excess payments will prevent interest payments through the life of the mortgage. The amount you don't pay still gathers interest.
Consider investing your mortgage payment savings in your retirement account. Compound interest rewards early deposits.
Interest-only loans assume that you can afford much higher payments later. Ensure that you can afford the payments even if your expected windfall does not occur. Prepare for a drop in the appraisal value of your property.
