Interest-Only with Extra Mortgage Payments Calculator

Building a Safety Buffer by Making Extra Payments

Interest-only loans are structured as adjustable-rate mortgages. We also offer an I-O ARM calculator and a traditional ARM loan calculator. With interest-only loans homeowners do not build equity in their homes unless prices rise, which puts them in a precarious position if house prices fall or when mortgage rates rise & drive their monthly loan payments higher. One way to build a buffer from market fluctuations is by adding extra monthly payments applied toward your principal.

Use this calculator to figure monthly home loan payments for IO loans. You can also apply an additional monthly payment to pay down the loan's principal & generate a loan amortization schedule which shows your progress in repaying the loan.

For your convenience current Cambridge mortgage rates are published underneath the calculator to help you make accurate calculations reflecting current market conditions.

Calculator Rates

Home Price & Downpayment	Amount
Appraised Home Value:	($)
Down Payment:	($)
Mortgage Amount:	($)

Loan Structure	Amount
Loan Term:	(Years)
Interest Rate (APR %): See Current Cambridge Rates	(%)

Extra Payments	Amount
Additional Monthly Payment:	($)
Show Schedule Table

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Money Saving Tip: Find the Best Cambridge ARM Loan With the Lowest Rates

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The following table shows local mortgage rates. If you would like to compare fixed rates against various introductory periods you can use the products menu to select rates on loans that reset after 1, 3, 5, 7 or 10 years. By default refinance loans are displayed. Clicking on the purchase button displays current purchase rates. Additional loan options are listed in the drop down filter area.

Making Extra Mortgage Payments on an Interest-Only Loan

Interest-only loans offer a flexible financing option for those who need to reduce their monthly mortgage payment. Just like the name says, you only pay the interest on the loan, rather than the principle. As a result, you lower your payment as much as you possibly can.

For example, if you have a $400,000 loan with a 6% interest rate, you will pay $2,000 a month with an interest-only loan. With a conventional 30-year, fixed-rate mortgage with the same interest rate, you would pay $2,398.20 per month. With the interest-only loan, you save yourself hundreds of dollars per month, though you do so at the expense of not building equity as fast.

People choose interest-only loans for a number of reasons. Some people may choose them in the beginning so they can afford a larger house before they start making more money at work or get the big promotion they were expecting. Others may choose them because they plan to flip the home for a profit within a relatively short time, and they don’t want to spend more money than they have to before the sale.

The primary drawback of an interest-only loan is that you don’t build any equity while you are paying it. In some cases, you may even develop a negative amortization, not paying the full interest on the loan in pursuit of paying even lower monthly payments. At the end of the loan term, you would owe more than when you started it.

By making an extra payment toward your mortgage each month, you can help to pay down your principle, helping to create a buffer against fluctuating home prices and shifting mortgage rates. That way, when you are ready to sell, you aren’t taking as big a risk in case your home does not appreciate as much in value as you originally anticipated. Remember that homes are rather illiquid and expensive assets with high transaction costs. In most cases you lose at least 6% on each transaction due to the combination of Realtor commissions, legal fees, moving costs, and the need to carry multiple loans at the same time (if you buy a new home before selling your old one).

The difference between making extra payments and making a traditional mortgage payment is that you choose how much you pay, and you can change the amount each month if you choose to do so. Whatever amount you pay can help you pay down the balance, and you can decide the amount based on your current financial circumstances.

Even small amounts can make a big difference. For example, if you make an additional $400 payment per month on a $400,000 interest-only loan with a 6% mortgage rate, you would pay off the loan faster than a person paying a normal 30-year amortizing loan at the same rate, gaining you $400,000 of extra equity over the duration of the loan. That’s assuming that you make the $400 a month payment consistently and that you do not have an interest-only loan with a variable rate.

Even one-time payments can help you pay down your loan balance, since they go directly to the principle of the loan. Tax refunds, investment dividends, insurance payments and annual work bonuses can all be diverted to your mortgage to help you pay down the balance faster. Making extra one-time payments early in the loan term provides additional savings as any amount applied won't have interest owed on it for the remaining duration of the loan.

Though extra payments may not be necessary, they can help you to build more equity in your home faster to improve your financial picture even fi there are significant fluctuations in the housing market. If the value of your home drops, you can protect yourself against owing more than the home is worth. If your house appreciates in value, you can make an additional profit.

Most homeowners who have adjustable-rate loans eventually switch over to fixed-rate loans after they have built sufficient equity allowing a refinance into a fixed rate. Fixed rates provide stability allowing you to not need to worry as much about shifts in interest rate conditions.

Cambridge Home Buyers May Qualify For Low Downpayment Home Loan Options

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