Interest Only Mortgage Repayments?

[kfpg]

Using Karl Jeacle's calculator it is easy to see what the monthly repayments are using an example of say 250,000 over 30 years. How would you calculate the repayments on an interest only mortgage for the same amount and term?

 

[GeneralZod]

Look at the first entry in the Interest column in the Annual or Monthly tables.
This amount will remain fixed (assuming APR rate doesn't change) until capital repayments are begun.
Starting from that point the repayments will then be the same as a normal annunity mortgage over the remaining term.

 

[kfpg]

Thanks Zod, looked at the column and see the figures although interest seems to me not fixed but on a reducing balance per month all the way to the end of 30 years.

Perhaps the mortgage products however are structured to be a fixed amount in order to pay the interest portion more quickly thus leaving only the capital balance at some point in time into the mortgage?

 

[GeneralZod]

Lakeview, look at just the first entry, that's what you'll pay if it's interest only loan. With an interest only loan it remains at the same level as the first interest repayment on a normal loan because at that stage there haven't been any capital repayments that reduce the amount of interest charged.
Each month you're paying just enough to keep the total amount owed constant.

 

[cobalt]

I've use this interest-only mortgage calculator in the past

 

[kfpg]

Cheers Zod & Cobalt - I have it now. Just need to look at best buys list for interest only next.

(just looked - interest only not on best buys - anyone know typical rates?)

 

[Sarah W]

If a lender offers interest only it will on the same rates as their annuity products. To calculate an interest only payment simply multiply the amount borrowed by the interest rate and divide by 12 - €200,000 x 3% by 12 = €500. Simple!

Sarah

www.rea.ie

 

[aaron_1]

Using Karl Jeacle's calculator it is easy to see what the monthly repayments are using an example of say 250,000 over 30 years. How would you calculate the repayments on an interest only mortgage for the same amount and term?

here is a really nice interest only mortgage calculator that I have used few times. I know I'm late on this, but hope this can help someone else.

--aaron

 

[Marie]

here is a really nice interest only mortgage calculator that I have used few times. I know I'm late on this, but hope this can help someone else.

Sarah - I've never really understood if the interest incurred during the "interest-only period" - say 5 years - gets added to the sum borrowed and the repayment interest calculated on the whole kaboodle. If so is an interest-only mortgage more expensive than an annuity mortgage even at the same interest rate and conditions?

 

[aaron_1]

here is a really nice interest only mortgage calculator that I have used few times. I know I'm late on this, but hope this can help someone else.

Sarah - I've never really understood if the interest incurred during the "interest-only period" - say 5 years - gets added to the sum borrowed and the repayment interest calculated on the whole kaboodle. If so is an interest-only mortgage more expensive than an annuity mortgage even at the same interest rate and conditions?

it does not. on that page http://iloancalculator.com/calculators/interest_only_mortgage_calculator.html - the interest only loans are explained.

during the interest-only period, you only pay for the interest on the loan so you principal balance does not come down. after X years, you still owe the bank what you did when you first bought the house. these loans are best for those that are looking to get into a house that they could not afford via traditional financing. the payment amount is lower with interest-only mortgages.

hope that helps...

--aaron

 

[Marie]

during the interest-only period, you only pay for the interest on the loan so you principal balance does not come down. after X years, you still owe the bank what you did when you first bought the house. these loans are best for those that are looking to get into a house that they could not afford via traditional financing. the payment amount is lower with interest-only mortgages.

hope that helps...

--aaron

Aaron - doesn't that mean the borrower pays (1) interest on the principal balance for the 5 years AND (2) the loan + interest on all remaining capital for the succeeding years. What I'm trying to get at is - through the prolonged repayment period is the borrower liable for more interest than would be the case in a repayment (annuity) mortgage?

 

[aaron_1]

during the interest-only period, you only pay for the interest on the loan so you principal balance does not come down. after X years, you still owe the bank what you did when you first bought the house. these loans are best for those that are looking to get into a house that they could not afford via traditional financing. the payment amount is lower with interest-only mortgages.

hope that helps...

--aaron

Aaron - doesn't that mean the borrower pays (1) interest on the principal balance for the 5 years AND (2) the loan + interest on all remaining capital for the succeeding years. What I'm trying to get at is - through the prolonged repayment period is the borrower liable for more interest than would be the case in a repayment (annuity) mortgage?

I see what you getting at. you are correct if you are looking at it that way. interest only mortgages are not meant to be "cheaper," they only allow people to get into a more exensive property that they would not otherwise qualify for (you can use this mortgage qualifier calc to compare the two). I have seen people using this type of mortgage to gain access to a property that appreciated so fast that after the 5 years, the capital gains they made were quite hefty. here is a pretty good article on interest only mortgages - explains it quite well.

hope that helps.

cheers, aaron

 

[ordinaryman]

If a lender offers interest only it will on the same rates as their annuity products. To calculate an interest only payment simply multiply the amount borrowed by the interest rate and divide by 12 - €200,000 x 3% by 12 = €500. Simple!

Sarah

www.rea.ie

http://www.rea.ie

Hi Sarah,
Does the term of the loan i.e 20 or 30 years etc not have any bearing on the actual cost per month as i was under the impression that the longer the term the smaller the repayments would be on an interest only mortgage?
Am probably missing something,but just thought i would ask anyway.
Thanks

 

[aaron_1]

If a lender offers interest only it will on the same rates as their annuity products. To calculate an interest only payment simply multiply the amount borrowed by the interest rate and divide by 12 - €200,000 x 3% by 12 = €500. Simple!

Sarah

www.rea.ie

Hi Sarah,
Does the term of the loan i.e 20 or 30 years etc not have any bearing on the actual cost per month as i was under the impression that the longer the term the smaller the repayments would be on an interest only mortgage?
Am probably missing something,but just thought i would ask anyway.
Thanks

yes, the payment remains the same unless you make extra payment towards the principal. check the above calculator to see that when you change the period the payment remains the same.

--aaron